Advertising Age: Microsoft, by all appearances, is on the verge of a major transition from a software company to an advertising and marketing-services company. Are you ready to be an advertising company? How are you managing this change internally?
Steve Ballmer: Microsoft is a software company that evolves with the market and embraces new business models and opportunities. As the lines between technology, media and advertising continue to blur, software will increasingly drive how ads are created, purchased and delivered. That puts us in a great position to be a key partner to advertisers and publishers, and we're making the investments and developing the muscle to provide them with real value.
Our goal is to become an advertising powerhouse. Today, we're the No. 3 seller of internet ads. We're determined to allocate the talent, the resources, the money and the innovation to be the pre-eminent software provider for advertisers, publishers and agencies. We have all the pieces we need to succeed. We have strong audience assets, including a network of digital media properties like MSN, Xbox Live, Windows Live and Office Live that are visited by more than 500 million unique users every month. And with the recent acquisition of aQuantive, we have the tools and services to deliver breakthrough digital advertising solutions.
Ad Age: Many people suggest you overpaid for aQuantive. Tell me why you didn't.
Mr. Ballmer: There is no question that the aQuantive acquisition is a big bet on online advertising. But this is a huge opportunity, with some predicting an $80 billion market by 2010. This market is rapidly evolving toward internet-protocol-based platforms including TV and gaming, and it's through software that this world will become more manageable and more profitable for everyone involved. We're building the software platform that enables publishers and agencies to maximize their opportunities, and aQuantive plays a crucial part in this -- it brings incredible depth of experience and expertise in the ad-platform and digital-marketing area, along with some really deep and complementary technology assets. I feel great about the team and technology we've assembled and the plans we have in place to move forward.
Ad Age: You clearly see a role for Microsoft to play in the online advertising space, serving as a platform for better targeting efficiency, etc. Do you see other advertising channels, outside of online, that have inefficiencies or problems that Microsoft could potentially solve?
Mr. Ballmer: More and more content, entertainment and communications are being delivered over the internet. And over the next 10 years, I believe that all advertising is going to be digital. We're looking at ways we can optimize for consumer quality and advertiser effectiveness across online advertising and channels that people haven't traditionally thought of as being online, like television with IP.
Ad Age: What are your goals for search and do you think you can get there with the assets you have today?
Mr. Ballmer: There's no doubt that we still have work to do on search share, but our numbers are growing, and in late September we introduced new innovations that provide a big leap forward in search relevance and deliver significant innovation in the user interface. You'll also see big improvements in the quality of the experiences we offer, particularly for key search areas like entertainment, health, local search and shopping. ... We're serious about ads and search, and we have dedicated some of our best and brightest researchers and engineers to these areas.
Ad Age: Do you think you need another acquisition, aQuantive-size or larger, to get to where you need to be in the advertising/marketing space?
Mr. Ballmer: We will make acquisitions when they will enable us to accelerate our business. Our strategy is to continue to build our business and deliver great value to customers in the areas of communications and social media, search, portal, information management and advertising platforms. If we see specific opportunities to accelerate our progress in these areas by acquiring other companies, as we did with aQuantive, then we'll be more than willing to make more acquisitions.