RealTime IT News

How to Make Billions in Advertising

Microsoft CEO Steve Ballmer last week said his company aims to have as much as 25 percent of its revenues coming from advertising within a few years.

Those comments, given during a keynote speech at the !MAGINE 07 trade show in Paris, didn't include details on exactly when that might occur. Nevertheless, the claim is not too surprising given Ballmer's well-known intention to shift the software giant to a "software plus services" business model.

The question remains how the Redmond, Wash., company intends to accomplish that plan, especially since it has a considerable way to go. Microsoft last booked about $51 billion in annual revenue, only about $1.2 billion of which came from advertising, according to its most recent financial results.

Still, the effort has been underway for years.

Most recently, the company purchased online ad server aQuantive for $6 billion, a move designed to help it gain a larger footprint and more advanced technology in that arena. It also took over aQuantive's interactive agency unit Avenue A|Razorfish through the deal, making it a player in the agency space as well.

Then, of course, there's the company's Internet Live Search engine which, like Google's, is advertising-supported. The same is true of Microsoft's new HealthVault Search, which it will use to fund its recently introduced HealthVault medical records storage and retrieval service.

Microsoft also places ads on its MSN and Windows Live Spaces pages.

Then, there's Live Hotmail. Like Google's Gmail, it's free to consumers who are willing to put up with ads. Ditto for Live Messenger. At last count, the company said it had 310 million active Hotmail accounts and more than 280 million Messenger accounts.

Beyond that, however, there's an area of thin ice onto which Microsoft is starting to venture: making software applications themselves free in exchange for showing on-screen ads to users.

This summer, the company announced it would soon launch a pilot project to test the reception for a version of its low-end, home productivity software suite, Microsoft Works, which would be free but ad-supported.

The company has not said that it would do the same for its Office productivity applications suite, of course. After all, Office is one of Microsoft's biggest cash cows. But, some analysts say, the writing is on the wall.

"[Long-term] I don't think they have any choice but to have an ad-supported version of Office," Rob Enderle, principal analyst at researcher Enderle Group, told InternetNews.com. It's unclear when Microsoft might reach such a point, however.

"If they do it too quickly, they'll cannibalize one of their biggest money makers," Enderle said.

In the meantime, Microsoft will have to go much further if it wants to achieve 25 percent of revenues from advertising.

"This is a game-changer for Microsoft," Enderle said.

Microsoft is not taking the same tack as, for instance, Google, which has a hosted suite of office productivity applications called Google Docs & Spreadsheets that it offers as a low-end rival to Works and Office in the online applications marketplace.