Microsoft has indicated that it has plans to double its advertising revenue. At the moment, the figure stands at $10 billion but the plan is to push it to $20 billion. If Microsoft is able to hit this target, this would mean that it would become the sixth-largest digital ad seller worldwide, taking Tencent’s spot, according to estimates. Rob Wilk , Microsoft’s advertising division head stated that, “We believe we deserved our moment in the sun, and we’re getting it.”
This could be an indication that the company is in a better standing compared to 2015 when Wilk was contemplating whether to join the company or not. At the time, Microsoft had just sold its Atlas ad server to Facebook (now Meta) and given AOL its display advertising business to run. This made Wilk feel that the company was not ready to venture into the advertising business fully.
Fast forward to recent times, Wilk now heads the advertising division which has significantly improved, especially since the acquisition of AT&T’s ad unit Xandr, which was closely followed by its partnership with Microsoft which revolved around an ad-supported tier backed by Microsoft.
Matt Prohaska, an advertising consultant highlights that Microsoft could still become “a big four size” global ad player in time. This is despite the fact that it is currently facing tough economic times while simultaneously facing stiff competition from companies such as TikTok and Apple.
What would it take for Microsoft to hit this target? Bing search, Xbox, MSN, and hundreds of other websites are part of Microsoft’s advertising properties that use Xandr to sell digital ads. According to ad buyers, Microsoft needs to bundle all of its properties in a single point of contact which will in turn allow them to access them easily.
They further added that Microsoft needs to stand out from its competitors, especially those that interact with similar properties but have “more mature advertising businesses” like Google. Though Wilk countered and indicated that the company was partner-oriented compared to Google.
However, ad industry observers have indicated that Microsoft’s involvement with Netflix has given it the edge and is a step in the right direction as far as differentiation is concerned. Netflix started rolling out its new ad-supported tier in November, which now allows advertisers to buy ads via Xandr. This means that Microsoft will get a cut in terms of reseller fees. Tom Triscari, a programmatic economist at Lemonade Projects further added that, “It won’t take much for Netflix to generate $10 billion in ad sales. Good supply is scarce and highly valued.”
There are concerns about how sustainable this actually is, and if Netflix will retain the partnership with Microsoft for the long haul. A credible source acquainted with this partnership indicated that it was only short-term. Netflix hiring advertising executives Jeremi Gorman and Peter Naylor could be an indication that Netflix could sever ties with Microsoft in the long run. Wilk was reluctant to comment on the longevity of the contract and only stated that “It’s not 10 years but it’s more than two.”
Another avenue that ad buyers feel Microsoft could tap into to achieve this would be gaming. Despite the fact that the Activision Blizzard deal is still in the works, in-game advertising could set the ball rolling. Moreso if those ads can only be bought through Xandr.
It would seem that Microsoft is not keen to jump on this and would rather take time and evaluate the situation to avoid the backlash that might come from gamers. “We will do what we normally do, which is that we won’t be the fastest, but we’ll be the most thoughtful,” said Wilk. It seems that we are likely to see Microsoft taking up this route when it finds an acceptable way to incorporate ads into gaming, though it already sells ads on the Xbox home screen.
via: Business Insider