Microsoft's grand ambitions for free services rest on one thing: its ability to get to know you better.
The company has outlined a whole host of things it would like to offer as part of its "Live" services effort. But it needs to make more money selling ads to make the push pay off.
To do this, it's betting on personalisation as the way to boost its online ad sales. The centrepiece of the strategy is something called AdCenter — a tool that Microsoft has been developing for more than a year as a way to serve up ads tailor-made for the user that is receiving them.
While Google and Yahoo have made millions dishing up ads based on the context of what is being searched for or read, Microsoft is hoping it can leapfrog its rivals by combining that information with demographic details on who is doing the searching.
Right now, AdCenter is somewhat limited. For one thing, it's still in beta testing — in Singapore and France since September and on a limited basis in the US since last month. In addition, the tool, formerly known as MSN AdCenter, can only serve up the kinds of keyword-based, search-related text advertising offered by Google's AdWords and Yahoo's Search Marketing unit.
"Today, it's keyword," said Joanne Bradford, Microsoft's chief media revenue officer. "We believe in the future it will be about display (ads), video and all that is advertising."
The company will need to both grab market share and significantly grow the overall online ad market if it hopes to shift a significant part of its $40bn (£23bn) business over to an ad-supported model.
"There is a significant growth opportunity for us, as we tap into the growing market for online advertising," Microsoft's chief executive Steve Ballmer said at this week's shareholder meeting. "There will really only be a few big players in the online advertising market and our company aims to be, and will be, one of them."
Catching up
First, though, Microsoft has to be able to match Google and Yahoo, Web
companies that have built huge businesses selling keyword-based ads
that bring vast numbers of users to Internet sites. Google, for
example, generated $885m in revenue last quarter from ads on its own site, along with $675m in revenue from ads on partner sites through its AdSense program.
"I will admit we were late," Microsoft's Bradford said. "If we are going to catch up in any meaningful way, differentiating and adding value was critical."
Microsoft's effort to outflank its main rivals is centred on giving advertisers more targeted information about the people it is serving up advertising to — things like age, gender and postcode, as well as the time an ad will be delivered and other data.
Chris Winfield, president of 10e20, a New York-based search marketing and advertising firm, said such targeted information is the key advance of AdCenter.
"If it wasn't for that, then it would be (Google's) AdWords 'lite,'" Winfield said. "But that makes it a really powerful thing and something that we are excited about."
In a pitch to a consumer goods company this week, Bradford pointed out the difference between what Microsoft is offering and today's keyword search. Buying the keyword "bleach", she said, would seem to be a targeted purchase for someone that makes the household product. But, Bradford said, two-thirds of the people who query on that term are men aged 18 to 34. It turns out that many of the searchers are looking for a popular form of Japanese animation that also goes by the term "bleach".
Simply being able to target the ad to women could make it a lot more effective, assuming the gender-based stereotypes of who buys bleach are true.
Such demographic information is something that Winfield said is appealing to his clients.
"I'm willing to pay more if I know that I am getting a demographic," Winfield said. "This is where paid search is going — it's getting more personalised and more localised. With that will come higher prices."
That's critical, if Microsoft is to be able to offer a broader array of services and software that are entirely supported by advertising revenue.
"It's one of the highest priorities for the company," Bradford said.
Microsoft's first foray into new ad-supported services are the Windows Live and Office Live products it announced last week. Of key importance, both services are highly personalised and thus well suited to delivering the kind of targeted ads that AdCenter is intended to deliver. But analysts have wondered whether...
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Talkback
Eh, privacy anyone?
I don't know about you but getting ads on your PC screen based on your Internet searches is one thing.
Getting targeted ads on your PC, Mobile and XBox thanks to, perhaps, cross-linking personal data from your credit-cards, registration information, MSN behaviour, on-line subscriptions, DRM purchases, centralized controlled certificate authorizations, WindowsUpdate downloads, Genuine Windows validation checks, purchased license details and what not goes a bit far in my book. Likely not all at once but what's to stop a big thing that's going on to grow larger and larger? The Justice department? Civil rights groups? Politicians?
Sure, there will be ways to not let that happen to you but the average person is likely to agree to some EULA or whatever sooner or later that'll allow enough control over your personal data to make money from. And maybe the governments won't agree with it someday should they found out that certain laws have been stepped on but then it'll take years in court to settle it somewhat.
Ah well. Maybe privacy isn't something consumers and customers should value that much. After all, well data-mined privacy data is a valuable company asset for those that can turn it into hard cash. And no doubt sooner or later some research will surfice that'll show the economical and security benefits of it all. Just to explain all (political) worries away or whatever else needs to be explained away at that moment in time. Who knows, this might just be "market demand".
I will do my utmost to block MS getting my demographics (unless they give me a free OS). I get sick of "upselling" and the like on websites so I resist.
Email an enemy this page ;o)