Elizabeth Montalbano, IDG News Service
Microsoft should consider putting its search-advertising endeavors on the back burner for now and attempt an end run at Google by trying to become a leader in the display-, video- and mobile-advertising markets, where no company is a clear leader yet.
There would seem to be endless ways for Microsoft to do this, with its deep pockets, considerable technology infrastructure and extensive developer network. But the first hurdle it must overcome is to realize that in the near term, it's not going to beat Google at its own game in search or contextual advertising.
Microsoft "can't neglect search," but for the moment Google has that market sewn up, said Greg Sterling, principal analyst with Sterling Market Intelligence.
In the meantime, Microsoft should focus on other areas of its business where it already has an advantage over Google, and which it could leverage to strengthen its advertising business. These areas include providing entertainment online or though devices like the Xbox, and leveraging its vast community of developers.
Microsoft has seen traction from selling advertisements using content shown to its Xbox Live gaming community, which has about 10 million members, and is trying to position Xbox as a set-top box through which users can watch high-definition (HD) content. Microsoft also has a platform for providing Internet protocol TV (IPTV), another investment it is leveraging for its advertising strategy. These are both areas in which Google does not currently play.
Microsoft also has been lining up content partners for its MSN site and is using its Silverlight technology to provide HD content via MSN. While MSN is not as highly trafficked as some Google sites, it remains a content destination against which Microsoft can sell video ads. The company also has struck some significant content partnerships for MSN, notably an exclusive deal with NBC to provide 2,200 hours of live event coverage from the Beijing Olympic games.
Microsoft can use its strength in software to improve its adCenter and the ad-delivery technology that it acquired with its purchase of aQuantive to chip away at Google's contextual-search-advertising market share, Rosoff said.
"If you can get out of the publishing business and focus on tools, you can sell to 100 percent of the market," Rosoff said. Microsoft could strike more deals like the one it did to provide advertising to social-networking site Facebook, instead of "building out a video site or a social network, which are high-cost, low-margin businesses," he said. "Microsoft could use the platform to sell advertising on all of them," he said.
In mobile, Microsoft not only has a more mature platform than Google with Windows Mobile, it also has a critical mass of developers that can build applications.
While Windows Mobile itself provides limited opportunities for advertising because it is not cross-platform, Microsoft could use developers to "create new, compelling content and applications" for mobile devices that would be "vehicles" for advertising, said Gartner analyst Andrew Frank.
However, Julie Ask, an analyst with JupiterResearch, said the mobile market is still "too far off the radar" to warrant heavy investment in the near term from Microsoft or any of its competitors.
Still, when all is said and done, the ultimate goal in advertising is to offer a "multichannel and multimodal" platform that customers can use to place advertisements wherever they want, Frank said.
"When you're talking about large brands and managing lots of brands of advertisers across multiple channels, that's the kind of problem Microsoft is good at solving," he said.
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