Ballmer’s 25% Solution: A $16 Billion Advertising Business

Steve Ballmer recently got a lot of ink for declaring that Microsoft has the advertising business squarely in its sights. Microsoft would see at least 25% of its revenues from advertising within a few years, he declared. Let's put that one in perspective. Microsoft is currently a $51 billion…

Steve Ballmer recently got a lot of ink for declaring that Microsoft has the advertising business squarely in its sights. Microsoft would see at least 25% of its revenues from advertising within a few years, he declared.

Let’s put that one in perspective. Microsoft is currently a $51 billion business. Twenty five percent of that is nearly $13 billion. Given that he’s talking about a few years out, with current annual revenue growth rates, one can safely assume that’d be 25% of around $65 billion, or more like $16 billion. That’s two and a half times Yahoo’s current size, and north of where Google will probably end up this year.

The big question is: How? Ads on Office Live? Acquiring new inventory? Developing AdSense 2.0? These are the questions I plan to ask Brian McAndrews, the newly minted chief of Microsoft’s advertising business, at Web 2 next week. Joining him on stage will be James Bilefiled, of OpenAds, Curt Viebranz, the Tacoda chief who was recently named head of AOL’s advertising business, and David Karnstedt, SVP of sales at Yahoo. Each of these leaders see the same opportunity as Ballmer – the half trillion dollar advertising business is going digital – and each are charged with delivering on it.

It promises to be a robust discussion.

So what would you all ask the panel?

7 thoughts on “Ballmer’s 25% Solution: A $16 Billion Advertising Business”

  1. 1) What are Microsoft plans for advertising in mobile platforms ?
    (since it’s one media where Google hasn’t taken the lead yet)

    2) Does Microsoft have the guts to act as a middleman between publishers and advertisers, picking the best tools from aQuantitative and give’m away for free (think adsense + paypal + small publisher media agency).

  2. The traditional advertising business (print,TV and radio) have zealously protected their business ecosystem metrics of reach and frequency, slowing down even Google’s assault into this space. Major ad groups like WPP and Publicis have had difficulty in growing the digital arms of their agencies because not enough ad budget is allotted to digital online advertising, creating a bottleneck.

    How does spending more money on digital advertising resolve this problem? If Google, the search leader, has had trouble growing the space as fast it would like, then what does Microsoft have which can solve the problem?

    And, how would Microsoft resolve the problem of click fraud in search advertising?

  3. Interesting!

    Many related issues (e.g. magazine publishing, attention economy, etc.) display distributions that resemble “power laws” (the Zipf curve is basically y=1/x). Now the “normal” English vocabulary is well under 1 million words — perhaps less than 100K (and a quite refined directory may have less than 1K categories).

    Certainly a category such as “books” or “office supplies” will get an immense amount of traffic — but I guess that is traffic with very low margins. Let’s *assume* that the very high traffic to a category such as “books” would receive only 1 cent per “hit” and a category with relatively low traffic such as “surgical instruments” would receive $100 per “hit”. All of the screaming and shouting about long tails appears to be overlooking something: how large is the vocabulary?

    If the vocabulary is very small, then 1 or 2 sites may be able to take XX% of the pie. As the vocabulary gets larger, each individual site will take a smaller slice. The .COM vocabulary (remember: .COM stands for “commercial” πŸ˜‰ is approaching 100 million, dwarfing the size of the English vocabulary. (IMHO, it is ridiculously oversubscribed πŸ˜‰ Turning babies into “commercial entities” is equally ridiculous.

    Let’s pretend that 99% of these domains didn’t exist: that leaves about 1 million (still more than all of the words in the dictionary, but let’s just pretend it were somewhat “reasonable”). Would it take 250,000 websites to reach 25% of the revenue? Or would 1 site be the one-stop advertising platform for both “books” and “surgical instruments”. If so, how will you be able to discern the “Harry Potter” prospect from a person who might be more receptive to hot deals on scalpels? If not, how many site would you suppose would be required to meet the target of 25% of revenue (either as a number or as a percentage of some “abstract total”)?

  4. I would ask:
    – How much will International (Europe, Asia-Pac, etc) be a focus for these companies to drive advertising growth?
    – How much growth is expected outside the US for each company?
    – Is the ad serving technology for banners going to become basically free?
    – To Microsoft I would ask about areas where they plan to do further acquisitions and/or development
    – To Yahoo I would ask if they plan to re-engaged on Europe or have they simply decide to cede this to Google (as least outside the UK)?

  5. It’s intriguing that the day after this panel there is still virtually no media coverage of it… — no it’s actually amazing (considering how much attention is otherwise given to the topic).

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