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Inside Microsoft's war against Google
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.
Putting ad campaigns to the test
Microsoft has been developing a technology that will give advertisers a more complete picture. It's called Engagement Mapping, and 16 advertisers and agencies have been testing it out since February. The technology anonymously tracks cookies, those digital footprints left on PCs by Web sites, to see if a consumer saw display or video ads within a month of making that ultimate click. Then it places values on each related online ad, weighting things like videos more heavily, since they're likely to have more impact. That way publishers and marketers have a better understanding of the effectiveness of ad campaigns and can adjust pricing accordingly. "It's not anti-search," says Brian McAndrews, the Microsoft senior vice-president overseeing the effort. "It's just a better way to measure."
Ben Winkler is a believer. He's director of interactive media at the Ingenuity Media Group, part of ad firm The Martin Agency. He's been testing the Microsoft technology for one of his clients, wireless provider Alltel. The technology, he says, shows that display ads have an impact that had never been clear before. As a result, he plans to advise clients to spend a greater share of their ad dollars on display vs. search ads. "We're taking credit away from search to a high degree," he says.
Google declined to comment on Microsoft's initiative for this article. In the past, the company has said that it doesn't think that advertisers should focus exclusively on the number of clicks on search ads. In fact, it's developing its own tools to give a broader view of all kinds of advertising.
Will all of this be enough to help Microsoft become a top competitor in online advertising? It's not at all clear. Even as Google moves into display advertising, Yahoo presents a serious threat. For all its struggles of late, an independent Yahoo is a potent rival. The Internet portal helped pioneer the display ad business, and analysts say it has a somewhat larger share of the market than Microsoft, thanks to its more than 500 million monthly users. Yahoo also has leading positions in online media segments such as news, sports, and finance. "I still maintain that our great consumer experiences, combined with our leadership on the advertising side, make us truly unique," says Yahoo CEO Jerry Yang in an interview.
Ballmer could ultimately turn back to his investment bankers. He may decide that Microsoft needs an acquisition to have a legitimate shot at Google in online advertising. There has been speculation that Microsoft could buy America Online or a social-networking site like Facebook to gain some of the scale it would have gotten with Yahoo. People are convinced that Microsoft and Yahoo will end up together, despite protestations that their talks are over. "I have to believe that they will get back to the table," says Anant Sundaram, professor of finance at Dartmouth College's Tuck School of Business.
But for now, Lorizio and his sales force have to battle with what they have. The New Englander sees himself as the underdog, much like his beloved Boston Red Sox, who were runners-up to the New York Yankees for decades. Ultimately, the Sox defeated the Yanks in 2004 on the way to their first World Series win since 1918. Lorizio thinks Microsoft has the technological firepower and financial wherewithal to persevere just the same way. "I'm here to win," he says.
With Robert D. Hof in San Mateo, Calif.
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