Is Bill Gates, the world's most recognizable technologist, becoming an ad man?
The chairman of Microsoft Corp. C has seen the gargantuan profits rolling in to Google Inc.'s C on-line ad machine and he wants to get in on the action.
Advertising accounts for a small piece of Microsoft's annual $40-billion (U.S.) revenue, but it is the biggest growth opportunity for the company, said Chris Dobson, vice-president of sales and marketing at MSN's international division.
Five years ago, when Mr. Gates addressed audiences, Windows was what he cared about. “Now all he cares about is advertising. He really has woken up to the fact that there is great opportunity,” Mr. Dobson said in an interview in Toronto.
Mr. Gates' determination to move the world's largest software company in a new direction became startlingly clear last week. Presenting its third-quarter results on Thursday, Microsoft signalled it was going to invest “aggressively” in MSN and other areas to combat rivals such as Google and Yahoo Inc.
Analysts estimate the company will spend at least $2-billion more than originally planned in fiscal 2007, which begins July 1. But executives provided little detail on where the extra money will go or what it will mean in the short term. Investors responded by clobbering the stock.
Shares closed Friday down 11 per cent at $24.15 on the Nasdaq Stock Market.
On Microsoft's quarterly conference call Thursday evening, Goldman Sachs & Co.'s Rick Sherlund was among the analysts trying to get executives to provide more information.
“It sounds like you are building a Google or building a Yahoo inside the company,” he said.
“I don't think there's any Trojan Horse there that we haven't talked about that is sitting below the surface that we don't want to talk about,” responded Chris Liddell, the chief financial officer.
“There are some big numbers there; that is certainly true. And there's certainly some big potential spending and opportunities that we foresee in the MSN Windows Live area.”
Windows Live combines some of Microsoft's Windows and Office desktop software with MSN services. That means, for example, people could soon be able to prepare and store Word documents on-line using free, ad-supported programming.
The company is also pouring research dollars into a project called MSN adCenter, which, similar to Google's profitable search model, links search results with targeted ads.
Consumers know MSN today as Microsoft's portal for e-mail, instant messaging and news. But the company wants the site to become the delivery platform for a raft of new services designed to power big advertising sales.
In a sign of how serious Microsoft is about the shift, the company recently reorganized and moved its MSN operation into the unit responsible for Windows software.
Several years ago, Microsoft and many other firms assumed money from on-line content lay in subscriptions. Today, it realizes that the money comes from advertisements attached to free content.
In the future, the company will have one foot in software and one foot in advertising, Mr. Dobson said.
“Advertising might well be a funding mechanism for software in general going forward, which would be a profound effect for a company like Microsoft.”
He admits that it is a difficult transition. Building the MSN division over the past decade on advertising revenue was a tough journey.
“What we're doing now is starting the same journey with the rest of Microsoft,” he said. “It's a hell of a journey for a lot of those divisions to go on. It's quite an alien world if you've been in the software space.”
So, with a new laser focus on advertising, will Mr. Gates remake Microsoft into a media company? Mr. Dobson doubts the transformation will ever go that far.
“I think at heart, it will always be a software company. But it will think of itself as media-funded one day.”
