Microsoft spent nearly $14 billion on global sales and marketing in the fiscal year ended June 2011, with $1.9 billion dedicated to advertising. Yet revenue fell short of expectations in the most recent quarter, which included holiday sales, and net income declined.
The company employs high-profile agencies such as CP&B, Deutsch and Razorfish, but most of its ads in the past several weeks surveyed below average with online consumers in recall, relevance and likability, according to an analysis by Advertising Benchmark Index.
There's one exception, however: Xbox. The marketing structure for that brand seems to be the model for Microsoft's marketing reorganization, which will shift power from a central group to individual product teams. It's a key move at a critical time for the tech giant, as products soon hitting the market will determine if it has a future in mobile.
Robert Matthews, head of global consumer marketing for Microsoft's interactive-entertainment division, leads the Xbox marketing team. Arguably one of the company's most autonomous groups, it is described as "the wild boys that do what they want to do," by one executive close to Xbox. The renegade approach has been met with great success, as TV ads from TwoFifteenMcCann score high in awareness, call to action and understandability, according to ABX's measurement. With its Kinect gesture controller, Xbox was the top-selling game platform last year, according to NPD.
The companywide revamp will shift some accountability from centralized marketing to product-focused business units, such as Windows and Office, according to three executives familiar with Microsoft. The goal is to reduce bottlenecks and redundant roles, and Bloomberg Business Week has reported that the changes could result in the elimination of hundreds of jobs. The move comes months after Chris Capossela, a former marketer at Office, took over for Mich Mathews as chief marketer.
"Part of Microsoft's challenge is reorienting itself to its changing market position," said Sarah Rotman Epps, Forrester Research senior analyst on consumer computing.
The biggest change is the threat from Apple, a famously product-centric company that 's now Microsoft's biggest competitor in computing across all devices.
Microsoft's plan to give greater marketing power to product groups indicates a larger trend in which product people, often engineers, are wielding more clout in -- and even rising to the top of -- divisions. For example, in December, engineer Terry Myerson took over as the head of the Windows Phone division and will oversee all its marketing (see sidebar).
Oddly, while Microsoft is giving its product units more marketing leeway, the notion of centralizing marketing is gaining steam in the tech space. Apple, for example, is promoting its products as a group because its phones, laptops and TVs can communicate through common software. Such integration will also be a selling point with Microsoft, through a central marketing group that stands to shrink in coming months.
The "Family" holiday campaign that grouped Xbox, Office and Windows Phone has demonstrated early resonance with consumers; one ad for Office and Windows 7 was the No. 2 remembered spot last month, according to Nielsen. Another took the No. 2 most-liked ranking in November.