Tuesday, October 30, 2012

How Windows 8 Could Save Microsoft’s Online Advertising Business

The press has called the launch of Windows 8 a “defining moment” for Microsoft as it struggles to transition to the new generation of mobile computing. The media, as well as Microsoft shareholders, are closely watching the launch and rightly so. The Windows Division is a cornerstone of Microsoft’s business model, responsible for 31% of the company’s profit in the third quarter. It’s assumed that Microsoft must protect the Windows business if it’s to survive.

The success of Windows 8 would not only defend the lucrative Windows Division, it could rescue another hugely important division of Microsoft business: online advertising. That business, known as the Online Services Division (OSD) comprised of Bing, MSN network, Atlas and Hotmail, has been a disaster. The division is most notorious for the ill-advised purchase of aQuantive advertising firm, a $6.2 billion blunder Microsoft wrote off this year. That aside, OSD continuously weighs down Microsoft. In the third quarter it operated at a loss of $364 million compared to the Windows Division profit of $1.6 billion. OSD was the only Microsoft division to operate at a loss in the third quarter.

Microsoft’s opportunity to turnaround its struggling advertising business lies within the new Windows 8 interface, known as Metro. The Metro interface does away with the old-school Windows icons and replaces them with web-connected “tiles” that dynamically pull in updates for things like weather, news, social and email. These tiles amount to desktop apps that, just like mobile apps, can be ad supported. Google, Netflix and The New York Times are among nine thousand companies that have already built desktop web apps for Windows 8. As the owner of the app store (called Microsoft Windows Store), Microsoft, like Apple, has implemented a 70:30 revenue share with developers. Microsoft hopes it can parlay Windows 8 penetration of the PC market into a position of strength in the online ad market.

For that strategy to pay off, Windows 8 must replace web browsing with dedicated apps. That’s exactly what happened in mobile computing and Apple turned that into a healthy business - reportedly paying out $2.5 billion to developers in 2011. The good news for Microsoft is that the PC app market may turn out to be a bigger business. Time spent with PC accounts for 26% of a consumer’s time compared to10% for mobile, creating a bigger inventory set.  

The app-based interface of Windows 8 is also a key component of Microsoft’s strategy to combat Apple and Google in the mobile and tablet market. If consumers download desktop apps for their Windows 8 PCs, they may want them available on other devices, boosting the appeal of Windows 8 phones and tablets. If Windows 8 is a success, Microsoft advertising business could become the company’s newest bright spot, instead of its perennial black eye.

Saturday, October 6, 2012

Native Ads Offer Traditional Media a Digital Lifeline, But Not Without Controversy

Do "creative service" teams and
native ads undermine editorial credibility?
Over the last few years, the collapse of the banner has put a lot of pressure on publishers big and small, forcing them to find alternative revenue streams.

Native ads offer a lifeline for publishers struggling to transition to the digital era. But, the adoption can be a source of controversy. Because native advertising is designed to blur the line between edit and ad, it can be perceived as a threat to the editorial credibility of the site. Equally controversial are the “creative service teams” that churn out advertiser content to populate these native ads. Together, these new ad products can subtly undermine a publisher’s willingness to objectively cover news on a client’s company.

To incorporate native ad products, publishers must leave behind the linear “church and state” relationship between editorial and sales and embrace a more fluid dynamic. For traditional publishers, this amounts to a drastic cultural change.

As a result, whether or not a publisher has adopted native ads is fairly predictable. Media companies born in the digital era, like BuzzFeed, The Huffington Post and Gawker sell native ads. Traditional, larger conglomerates, like Hearst and Time Inc., don’t.

That’s why it was big news when The Atlantic, a 155 year old publication, rolled out its native ads. When questioned about editorial credibility, The Atlantic’s publisher Jay Lauf told Digiday, “A lot of people worry about crossing editorial and advertising lines, but I think it respects readers more.”

Will large, traditional media companies follow suit and acknowledge that their readers are sophisticated enough to delineate advertiser content from editorial? Part two of this post answers that question.

Native ads capitalize on the maturation of the branded content era

The need for branded content dates back to the invention of the DVR. Still, it wasn’t until blue chip brands built enormous followings on Facebook that having a “content strategy” became standard practice for marketers. 

The boom in branded content should have created a market for distribution. Unfortunately for advertisers, there is very little “premium” scale for the distribution of branded content. Federated Media and Visible Measures are the exceptions in a landscape littered with auto-play, beneath the fold or incentive driven views. While Twitter, Facebook and YouTube offer native solutions with massive scale, they fail to deliver contextual relevance or borrowed credibility, an essential pair of tactics for successful distribution of branded content. 

In that regard, larger media companies like the print conglomerates, that have a diverse portfolio of top shelf properties, have a key advantage in selling native ads. In addition to borrowed credibility, contextual relevance and scale, placing native ads on a traditional, brand name property has another, surprising advantage. Unlike banners, native ads appear within the editorial stream of the site, a tangibility that gives marketers the same “master of the universe” feeling of seeing their ad on TV.
Watch for traditional media companies to embrace native ads and take share from Facebook, Federated Media and Visible Measures in the burgeoning market for branded content syndication.