Microsoft ready to spend, but on what?
Published: 03 May 2006 16:15 BST
Just how does Microsoft plan to spend all those billions of dollars?
That's the question Wall Street has been asking since last week, when the company announced it would pay out far more than expected in the next 15 months as it bulks up several of its new business efforts, particularly its online services.
Investors may get some answers this week, as the software maker hosts an annual gathering for hundreds of MSN advertisers and other ad industry notables. Microsoft is expected to give further details of its strategy and show off some of the earliest fruits of its labours.
Much of Microsoft's focus -- and spending -- centres on online advertising. Its biggest bet in that area has been its decision to switch from Yahoo's ad-serving technology to its own homebrewed alternative, AdCenter.
Over the long haul, the company hopes AdCenter will prove more adept at targeting advertisements to the individual user, in the process sending more revenue its way.
That was not the case in the past quarter, though, when Microsoft shifted the majority of its US search advertising over to the test version of AdCenter. Revenue per search actually fell, as the company is still ironing out the kinks in the product and building its base of advertisers.
Credit Suisse estimates Microsoft has moved from an ad network of 300,000 advertisers to one that, for now, stands at less than one-tenth that figure. In a research note, Credit Suisse analyst Jason Maynard wrote: "While we assume that the number of advertisers will climb substantially over the next 12 months, we are underwhelmed with the stickiness of the Microsoft Web properties."
Executives insist the move is right for Microsoft in the long term, whatever growing pains it entails.
"Further growth of AdCenter is key," Microsoft chief executive Steve Ballmer wrote in a memo to employees after the company reported earnings last week. "Our goal is to create the Web's largest advertising network, giving us an engine that will enable us to monetise our services and compete against Google."
On the agenda
The software maker is expected to demonstrate an updated test version of AdCenter at this week's conference, with a final version targeted to be ready by June.
Also on tap should be a clearer explanation of where Microsoft is headed with MSN, its online property. Many of MSN's existing services, such as Messenger and Hotmail, are being refitted with the Windows Live banner. However, the company is pushing ahead with a dual-brand strategy. At the meeting, it is expected to make its case to advertisers as to why both outlets make sense for their marketing bucks.
And it's not just Web sites that Microsoft may be looking to fill with ads.
It's expected to announce this week that it has taken over Massive, a company that serves up advertising to slots within video games.
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