May 9th, 2008
Why MSFT must make an acquisition in online media
Businessweek’s cover story is: “Inside Microsoft’s War Against Google - With Yahoo off the table, Microsoft plans to challenge Google’s online-ad juggernaut alone. A behind-the-scenes look at its provocative strategy.”
This behind the scenes look isn’t very deep. It mostly centers on MSFT’s “top U.S. salesman for online advertising, Keith Lorizio.” He is trying to convince large online ad buyers such as E*Trade to put more money into display ads and other online ads rather than search ads.
Fair enough. But how is that going to help Microsoft?
What is missing from this wafer-thin analysis of Microsoft’s battle with Google is a look at the business of online ads.
It’s wonderfully ironic that BusinessWeek misses the key issue that frames Microsoft’s strategic problem: it can’t grow its advertising business organically to match the deluge of ad money pouring into online advertising.
Microsoft spelled this out when it launched its acquisition bid:
The online advertising market is growing at a very fast pace, from over $40 billion in 2007 to nearly $80 billion by 2010. The resulting benefits of scale along with the associated capital costs for advertising platform providers make this a time of industry consolidation and convergence.
“The resulting benefits” are for Microsoft because there is no way it can organically grow its online ad business at a rate that can soak up $40 billion flooding into online markets in the next three years. No way.
It has to acquire online media properties otherwise it will miss out on an incredible bonanza–the richest gold rush in advertising since the radio was invented, imho.
Tom Foremski reports on the business and culture of Silicon Valley at the intersection of technology and media. He also writes at SiliconValleyWatcher.com. See his full profile and disclosure of his industry affiliations.
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