How to Make Billions in Advertising Software Plus Services Strategy Key to Ad Growth Goals Stuart J. Johnston
In fact, the move to an ad-supported model (or models) may be one of the toughest challenges that Microsoft has faced in its 30-plus years in business. It has an established marketplace and culture based on locally installed software — so-called "fat client" computing — a business model that brought in some $50 billion overall last fiscal year.
Thus, it's no surprise that the company is pursuing what it refers to as a "software plus services" strategy, as opposed to most of its competitors, who are going with what the much-discussed "software as a service" (SaaS) model.
Microsoft seems to be working hard to leave as little as possible to chance. For instance, August's purchase of aQuantive may help transform the company into both the world's largest media company as well as the largest interactive ad agency.
The acquisition "will enable us to strengthen relationships with advertisers, agencies and publishers by enhancing our advertising platforms and services ... [and it] also provides us with increased depth in building and supporting next-generation advertising solutions and environments such as cross media planning and video-on-demand," the company's 2007 annual report states.
This contrasts somewhat with Google, which is in the process of purchasing DoubleClick. Whereas the DoubleClick acquisition will make Google the largest purveyor of Interactive ads, Microsoft's acquisition of aQuantive establishes it as both a seller of ads and advertising services as well as a purchaser of advertising through Avenue A/Razorfish.
Still, don't look for Microsoft to try to start pitching ad-supported software to enterprises just yet. The company said it sees a clear difference between consumers and enterprise users. While enterprise users of Live Search already encounter ads, some analysts — and Microsoft itself — see advertising as distracting for corporate users trying to do word processing, spreadsheets, and presentations.
"We believe that there is a distinct difference between consumers' and enterprise customers' tolerance for the ad-funded model of delivering software," Whitney Burk, a Microsoft spokesperson, told InternetNews.com in an e-mailed statement.
"In the enterprise, tolerance for ad-funded software is much lower," she added. "Where it is common practice to target advertising to consumers based on browsing habits, enterprise customers tell us they are far less willing to share with advertisers the proprietary information that they have on their corporate intranets or in business documents, in exchange for a free software product."
So for now, at least, expect Microsoft to continue directing most of its advertising moves at consumers in its bid to make good on its CEO's prediction — and, if Enderle is to be believed, continue the software giant's trend of increasing revenue.
"If they don't have 25 percent out of ads, I don't see how they can get the kind of growth shareholders expect," Enderle said.
