Cover Story May 8, 2008, 5:00PM EST

Inside Microsoft's War Against Google

(page 3 of 4)

Microsoft's biggest fear is that once you start putting Google [software programs on the Internet], then the price Microsoft can charge for its software will erode markedly," says David B. Yoffie, a professor at Harvard Business School. "Just the threat means that Microsoft has to be able to offer advertising as a choice."

That's why there are few jobs more important at Microsoft than Lorizio's. Kevin Johnson, president of the division that includes Microsoft's online operations, says the salesman and his team are "front and center" in the battle for the online ad market. Unlike the stereotypical Microsoftie—a frumpy, maladjusted code freak—Lorizio is every bit the polished professional. He's tall and lean, a gym rat when he's on the road. A salesman at Yahoo before he joined Microsoft in 2005, he favors starched shirts and designer shoes.

He grew up in an Italian Catholic family just outside of Boston. His dad ran a trucking business, and his mother taught him to cook classic dishes like braciole. The 43-year-old still lives in Boston, though his primary office is in New York. And when he talks, the New Englander in him shows through, turning words like park into "pahk" and idea into "idear."

MICROSOFT'S FLEDGLING FAN CLUB

When Lorizio deals with advertisers, though, it's clear that his pitch for Microsoft's display technology is resonating with some. In E*Trade's offices, marketing chief Utton has spreadsheets splayed across a conference table when Lorizio comes to visit. Utton loves how Microsoft's analytical tools give him the ability to track the precise effectiveness of his display advertising. He knows, for example, how many people came to E*Trade after clicking on an ad on MSN Money, how many of those people set up brokerage accounts, and even how many became active traders. "It's a math project," he says, as Lorizio grins across the conference table.

Next up on Lorizio's New York tour is MindShare Interaction, a media buying unit of ad giant WPP Group. Microsoft has worked with the company to create a Web site called In The Motherhood, with video programming targeted at new moms. Lorizio stops in to chat with Margaret M. Clerkin, head of MindShare's North America operations, about the show and its advertisers. Microsoft not only manages the ads that run with the show, it also provides the technology for streaming the video and tosses in editorial content from its MSN pages. "They do a different level of customer service than anyone else," says Clerkin.

Over at Viacom, Microsoft has a substantial presence. The two companies cut a wide-ranging $500 million deal in December, which includes Microsoft selling ads on Viacom's Web sites. What impressed CEO Dauman is Microsoft's ability to generate decent ad sales on what's known as "remnant inventory," those rarely visited Web pages deep inside sites. Microsoft uses its Web-tracking tools to find out what individual Web surfers are interested in and then delivers relevant ads to them when they're on Viacom's less-clicked-on pages. The ad space is cheap, but the value for advertisers is substantial. "We don't have the kind of targeting capabilities that Microsoft has," says Dauman. This sort of "behavioral targeting" is becoming more widely used by a number of companies, including Yahoo.

The most provocative pitch from Lorizio and his sales team will come late this summer. It goes like this: Search advertising is vastly overrated. Today, when a Web surfer is looking for a car, he might type "Chevrolet" into Google and then click on an ad alongside the search results. Google gets all the money for that click, even though other marketing efforts, both online and off, probably helped persuade that person to conduct the search. Ideally, an advertiser would know about all the ads that a potential customer sees before he makes a purchase. "They're trying to say that Google's getting too much credit, and there's probably a lot of truth to that," says Curt Hecht, chief digital officer for the media buying giant Starcom MediaVest Group.

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