Trends seem to indicate that the digital media industry is going mobile. Until now the cellcos such as Verizon Wireless, AT&T, Vodafone and T-Mobile have tended to block access to certain sites and services. Companies that rely on the Net to deliver products like movies and services like ads will find it essential for themselves and their customers to have an open and free-range mobile Internet.
That includes access to every Web site (like not being blocked from iTunes) and the ability to run every Web application such as Skype.
Internet-based companies cannot operate without an open Internet include, most notably, Yahoo, Amazon.com, eBay and Apple, but especially Google, which has used its search engine to become the world’s largest advertising platform. One Wall Street analyst predicts that mobile search will eventually account for 80% of the search market. If mobile device users can’t access its search facilities, Google will shrivel and die.
It also appears that, just as with conventional television, the ad-supported model such as Joost will win out over the pay-to-view model which services such as iTunes are touting. That will create an opportunity for a service such as Google and its about-to-be-acquired DoubleClick to serve up millions of ads and generate billions of dollars.
Microsoft can be added to the list of companies that must have an open mobile Internet, as signaled by its CEO’s statement this week that he expects the company to generate 25% of its revenue from ads within a few years.
Online advertising will produce 25% of Microsoft’s total revenue within a few years, according to CEO Steve Ballmer in a talk he gave at a meeting of European ad agencies and their clients this week.
Microsoft’s annual revenues for the year ending June 30 were more than $51 billion, largely from sales of Windows operating systems and Office software. It’s expecting to do over $56 billion in the coming year. To add an amount that would be 25% of revenue, Microsoft would have to produce something like $14 billion in advertising revenue next year, for example. Unless, of course, revenues from packaged software decline significantly. Perish the thought.
Revenue from all of its online activities accounted for less than 5% of the company’s total for last year and not all that was advertising. Microsoft evidently intends to take a substantial amount of market share from Google, the world’s largest online advertising company.
Ballmer said the 25% of revenue number would be achieved within a few years – about the time that all media and marketing go digital. “Over time, all ad money will go through a digital ad platform,” Ballmer said. “All media goes digital; all advertising goes digital.”
There are two ways to generate revenue from online ads. Sell ads that appear on a company’s own content pages or sell and display ads that appear on another company’s Web pages. Microsoft has a lot of Web pages such as MSN that people look at, but that’s not enough to produce an amount that would equal 25% of the company’s revenue. To hit its goal, Microsoft will need a service that delivers ads to other companies’ Web pages.
In August, Microsoft, perhaps responding to Google’s acquisition of DoubleClick, paid $6 billion to acquire aQuantive, whose technology places continuously changing ads in front of Internet viewers, based on specific conditions. Additionally aQuantive has developed and is testing software called Atlas that will provide advertisers with a list of all the Web sites that browsers visited immediately before they went to the advertiser’s site.
The first new product from Microsoft’s acquisition of aQuantive is a mashup of MSN Video and Atlas AdManager, which will be used to create a video ad-serving platform for the Associated Press. With it, AP media-member, and customer Web sites, will be able to serve up local advertising with local content.
Microsoft this week acquired, for an undisclosed price, Jellyfish.com, which lets users compare prices from different online retailers. Retailers pay Jellyfish to promote their products and Jellyfish passes some of the money to consumers that buy from its site. The company has deals with such as Target, Home Depot and Best Buy. Microsoft also recently signed a deal to be Facebook’s digital advertising supplier.
Ballmer did reinforce that Microsoft does not intend to become an entertainment company, something that Microsoft’s top executives have said for several years. The New York Times quoted Ballmer as saying that ads would also be used to pay for software that its customers use. “Even the basic software that we’ve delivered for so many years – if it can be ad-funded in the way it gets delivered to consumers, it probably will be ad-funded,” he said.