Microsoft’s Inner Thoughts on Online Advertising
Have you been wondering what had been going through the heads of Microsoft executives as they prepared to make the bid for Yahoo?
In December, I got my hands on three confidential documents that Microsoft used in its lobbying against the Google-DoubleClick deal, and I posted them on Bits. (See that post here.)
Re-reading those documents now show that Microsoft was clear with the Federal Trade Commission that an approval of Google-DoubleClick might lead it to take drastic action–like it is doing now with its bid for Yahoo.
Microsoft wrote in one of the documents:
“If the transaction is allowed to proceed, Google will control so much of the publishers’ inventory and such a large portion of advertisers that Internet competitors trying to catch up will not have access to sufficient inventory and advertisers to mount a credible competitive challenge to Google.”
Microsoft warned that the DoubleClick merger would leave Google delivering almost 78 percent of all non-search ads served to third-party Web pages, on a revenue basis. That means that a combined Google-DoubleClick gives Google dominance over more than three-quarters of sites that do not have their own technology for display ad serving. Microsoft and Yahoo are the only two companies who have their own ad-serving.
Google has long been dominant in search ads, those small text ads that run alongside search results or on the bottom of thousands of sites across the Web. Google made its fortune selling those to companies that paid based on how many people clicked on those ads. Microsoft and Yahoo each lost the battle in search, as Microsoft acknowledged in its writings to the F.T.C.
Microsoft wrote:
“One need look no further than search advertising to see that despite Microsoft’s size, technical prowess, and strong incentives, it has been unable to compete effectively with Google in search and that Google’s lead in search advertising has continued to grow because of network efforts.”
But the next flood of advertising money is coming online for display ads - flashy photos or videos that are used to generate brand recognition rather than immediate clicks for advertisers like Pepsi and Nike. And display ads will provide the next battleground between Google and its foes.
Google hopes to use DoubleClick’s connections to brand advertisers and major media companies to get in on the display pie. Microsoft warned the F.T.C. that Google might initially offer DoubleClick’s tools for free to media companies so that it can gain control over display ads.
Yahoo and Microsoft each separately have leads over Google in display ads, but Microsoft told the F.T.C. that a Google-DoubleClick would be much stronger on this front:
“Significant companies like Microsoft, Time Warner and Yahoo! that continue to make investments in non-search advertising will be unable to counter the anticompetitive impact of this transaction.”
You can count on Google’s lobbyists giving a good fight against a marriage of its closest two competitors. Microsoft, after all, did its best to block the Google-DoubleClick deal. The technology giant hired the public relations firm Burson-Marsteller to create a group called the Initiative for Competitive Online Marketplace.
It might seem the commission allows almost anything. It has only been weeks since the commission cleared Google’s acquisition of the ad-serving company DoubleClick and just months since the commission cleared Microsoft’s purchase of aQuantive, the main competitor of DoubleClick.
You can also be sure that Microsoft will use its arguments against Google’s recent deal again to claim that it simply had no choice but to shell out $44.6 billion for Yahoo.
http://bits.blogs.nytimes.com/2008/02/03/microsofts-inner-thoughts-on-online-advertising/
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