With one automatically checked box, Microsoft is challenging the advertising architecture of the web.
In the weeks since Microsoft announced that its Internet Explorer 10 browser will ship with "do not track" as the default setting, marketers and agencies have been reaching out with one overarching question: What gives?
Until now, industry consensus was that an opt-out of targeting should be a decision made by the user. Microsoft helped create that consensus through its participation in the Digital Advertising Alliance, a consortium of trade groups that has been attempting to establish self-regulation over the industry.
But Microsoft's new browser will treat all users like they have already opted out unless they say otherwise, a feature that could put the web-surfing behavior of millions of people off-limits to websites and marketers that honor that designation.
Some of the biggest ad holding companies have reached out to Microsoft this month to make their case against the do-not-track default. WPP Chief Executive Martin Sorrell wrote Microsoft CEO Steve Ballmer last week and dispatched WPP's top digital executive, Mark Read, to meet with Microsoft corporate VP-advertising and online Frank Holland over the issue, according to executives familiar with the situation.
High-level Publicis execs including Vivaki CEO Jack Klues have reached out to Microsoft about the issue as well. Both WPP and Publicis are big buyers of Microsoft ad inventory and handle Microsoft advertising business.
Over the years, the Windows side of Microsoft has considering making do-not-track a default feature of its browser. The last time was in 2008, when Mr. Ballmer asked Chief Strategy Officer Craig Mundie and General Counsel Brad Smith to decide what was best for Microsoft: a browser with privacy built in that might appeal to consumers or the ad ecosystem that fuels MSN, Atlas and the Online Services Division. They ruled on the side of the advertising.
But this time Microsoft has shown no sign of backing down. "We ultimately concluded that the appropriate privacy-friendly default for DNT in IE10 is 'on,'" Microsoft Chief Privacy Officer Brendon Lynch wrote in a blog post. Microsoft declined to comment for this article.
On Wednesday, the World Wide Web Consortium is convening what promises to be a contentious meeting at Microsoft to determine whether IE 10 will get the group's seal of approval. If the group decides to give its blessing, it will also have to come up with standards for websites to follow when they're visited via browsers with an automatic DNT beacon. Meanwhile, a patent challenge on the automatic opt-out could delay the process altogether.
The initial analysis on Microsoft's DNT browser was that it is a scorched-earth tactic aimed at harming one of Microsoft's biggest competitors, ad-reliant Google. Advertising is Google's principal business, not a money-losing sideshow like it is at Microsoft. Google specializes in ad- supported services that compete with Microsoft, such as Gmail and Google Docs, while Microsoft specializes in getting people to pay for things directly, such as Windows and Xbox Live.
There's no doubt that if IE 10 gains significant share it will directly affect some of Google's businesses, such as Admeld, its AdEx ad exchange and the demand-side platform once known as Invite Media, not to mention a great many startups in the online ad ecosystem. But as WPP pointed out in that letter to Mr. Ballmer, Google could actually be helped by do-not-track; it will affect mostly performance-based display advertisers who bid for ads across the web using data. If that data can't be collected because of do-not-track browser settings, those advertisers will likely flee back to search, which more often than not means Google.
"We made the point to Microsoft that if anything this will strengthen search, and strengthen Google," said John Montgomery, chief operating officer of Group M Interaction, a unit of WPP. WPP also owns 24/7 Media, a network and exchange that would be severely affected by the move.
Google already has permission to track a huge number of its users through its universal opt-in setting, created when it merged its disparate privacy policies earlier this year. When Google announced the change, Microsoft went on the attack with an ad campaign claiming that Google was selling out user privacy to boost ad revenue.
Apple, Yahoo and Amazon, have large signed-in user bases as well, meaning they've acquired permission to track.
"I actually think it's a good thing for publishers at a high level," said Dan Jaye, CEO of Korrelate and former adviser to the Federal Trade Commission. "When third-party data goes away, power shifts to those with first-party data."
Others may not honor the DNT signal because they'll determine that the user didn't initiate it; Microsoft did.
As audiences fragment, marketers and agencies want the ability to follow users as they move across the web, both to inform advertising and to make sure they aren't showing someone the same ad repeatedly, or -- as they sometimes say in the business -- ads for both "dentures and diapers." Advertisers also want the ability to combine their own data with third party behavioral or even location data to make ads more targeted and effective.
The entire premise behind ad networks and demand-side platforms buying audience across the web is that they use data to make less-valuable inventory more valuable to a given buyer. "If you can't set cookies and target inventory, you will be monetizing at 75 cents, and not $8," Mr. Jaye said, referring to the cost to reach a thousand people, an industry measure known as the CPM.Microsoft's Internet Explorer has been steadily losing share to Google's Chrome, but is still dominant on desktop computers, with a 54% share.
The last time Microsoft faced a choice its web browser and advertising, its ad business resisted. Mr. Mundie eventually oversaw a robust debate between the Windows team led by President Steven Sinofsky and the Online Services Division, led by former senior VP Brian McAndrews. Ad industry advocates like the IAB's Randall Rothenberg and the Association of National Advertisers' Bob Liodice were also invited to Redmond. Microsoft had just spent more than $6 billion on aQuantive and its ad server, Atlas, had dominant market share.
"What happened then was a discussion about what was the right thing for Microsoft to do," said Mr. McAndrews, now a principal at Madrona Venture Group.
In the end, the ad division won the day, but much has changed at Microsoft since then. Mr. McAndrews and much of the former aQuantive team have left the company. Qi Lu, president of the division, was hired from Yahoo in 2009 to build Microsoft's search engine, Bing. And engineering resources have been poured into a hugely complex search integration with Yahoo. "Clearly search is their primary focus in online advertising," said Mr. McAndrews, who left the company in 2009.
One thing stayed the same: Microsoft's ad executives were once again initially blindsided by the move. But this time Microsoft didn't subsequently convene a discussion including outsiders. "There was no debate," said Steve Sullivan, VP-advertising tech research at the IAB. "It was just done."
The company may well be conflicted on the issue. Divisions across Microsoft can operate like "multiple companies doing whatever the hell they want," as one former employee said. Even Microsoft's "privacy by design" stance seems suspect when the company is also applying for patents that would allow it to target ads according to consumers' "emotional states based on their search queries, emails, instant messages and use of online games, as well as facial expressions, speech patterns and body movements."
As recently as 2011, Microsoft advertising execs were extolling the virtues of online data. "If we continue to see data as an issue of priacy and not one of opportunity around an asset, then we are going to continue to postpone the opportunity that is ahead of us," said Rik van der Kooi, corporate VP, Microsoft Advertising, at an IAB event in 2011.
But display ads are certainly less important to Microsoft than the success of Windows 8, which will include Internet Explorer 10. And as Explorer loses ground to Google's Chrome in the browser wars, Microsoft is hunting for a differentiating feature -- even if it does hobble the ad side of its business.
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