July 9, 2012

Microsoft’s Places Losing Bet On Ad Market

Michael Harper for redOrbit.com - Your Universe Online

Facebook isn´t just changing the way we communicate with one another, it´s also changing the way companies communicate with buyers. More specifically, it´s changing the way companies display and sell ads. Once thought to be a booming business, selling display ads and website banners is now suffering as Facebook and other sites have clouded the ad display market. One company, in fact, wanted so much to be a part of this potential red-hot market, they spent billions on an ad display company: $6.3 billion, to be exact.

According to Reuters, Microsoft paid big money to buy aQuantive in 2007, hoping to come out on top in an ads race with Google and Yahoo. On Monday, Microsoft cut their losses, writing off the entire value of their acquisition and walking away with a $6.2 billion writedown. In fact, the aQuantive acquisition never met Microsoft´s expectations, as CNN reports Microsoft´s online sales division lost nearly half a billion in the last quarter, $2 billion over the past 12 months.

In a bit of a dismissive press release, Microsoft tried to downplay their losses by saying, “While the aQuantive acquisition continues to provide tools for Microsoft´s online advertising efforts, the acquisition did not accelerate growth to the degree anticipated.”

Microsoft certainly can´t be blamed for the way the online ad display market has trended over the last 5 years. Not only has Facebook grown in popularity, (58 million in December 2007, 845 million in December 2001) but advertisers have begun to target their ads more efficiently. To top it all off, there´s the burgeoning sense of weariness about the state of online advertising.

Overall, says Dave Morgan, CEO of SimulMedia, the display ad market grew too quickly.

“The inventory or amount of ad spots grew so fast, it outgrew demand,” Morgan told Reuters.

“That brought pricing down massively. So a lot of display advertising really became a
ghetto for bad direct-response advertising.”

According to Morgan, the big ad money these days is in TV marketing.

Microsoft doesn´t only have Facebook to blame for their advertising woes. As they entered into the online ad and search game, they knew they had to catch up with Google. When it launched, Microsoft´s search engine, Bing, had an 8.4% share of the online search market. Google, on the other hand, held a commanding 65%. Bing is performing better now, holding a 15.4% market share, though Google still reigns supreme at 66.7%.

The Redmond-based company was actually able to improve their market share, thanks to AOL, Ask.com and Yahoo. Now that Yahoo´s search is powered by Bing, more people are using their search engine, boosting their market share. However, because of this, more than half of their market share has come the expense of their search partner.

Not ready to give up all signs of hope, Microsoft has said the state of online advertising is “improving,” though they aren´t yet ready to get their hopes up on turning a profit.

To do this, search market analysts are saying Microsoft needs to capture 25 to 30% of the market in order to make their ad offerings appealing to potential advertisers. As for the display ad market, some analysts and experts are saying the industry is in dire straights as internet “veterans” have trained themselves to subconsciously filter out display ads or run blockers on their browsers to remove them altogether. Wine.com CEO Rich Bergsung put it rather simply, “At the end of the day, they don´t work."