Microsoft's Plans to Become Online Ad Giant Still on Track

With or Without Yahoo, Work Continues on Sales Platform

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NEW YORK ( -- When Microsoft executives take the stage this week to address 500 advertisers and publishers at their annual ad confab, they will have to explain how they hope to build an online ad powerhouse sans Yahoo.

Meanwhile, Carl Icahn is going after Yahoo in a proxy fight he hopes will lure Microsoft back to the table. And Microsoft is working on an alternative deal to acquire some but not all of Yahoo.

But still no Yahoo yet.

Platform in place
So Microsoft plans to grow organically by owning the platform that connects digital-ad buyers to digital-ad sellers with buy-side tools advertisers and agencies use to make advertising more effective, sell-side tools publishers use to help manage and maximize their inventory, and networks and exchanges that can turn unsold inventory into money and aggregate audiences for advertisers.

"Yahoo was not a strategy," said Brian McAndrews, senior VP of Microsoft's Advertiser and Publisher Solutions group. "Yahoo fit into our overall strategy of building the overall platform."

The message will be about the progress Microsoft has made and will continue to make on the platform, Mr. McAndrews said.

He said Microsoft has all the components of the platform but is clearly weaker in some areas. Yahoo would bolster some of those areas, search advertising in particular, but wouldn't bring Microsoft anything it doesn't already have, Mr. McAndrews said.

Microsoft's annual event in the past has focused on advertisers for Microsoft properties. This year it'll focus not just on first-party properties but also the technology platform for advertisers and publishers.

Lofty goals
It's unclear exactly how much money Microsoft will be able to milk from the platform, but the company has set lofty goals. Steve Ballmer announced last fall that in four to 10 years, advertising will account for as much as 25% of Microsoft's business; right now it's about 6% to 7%. That would make Microsoft an almost $13 billion online-ad player.

Ultimately it'll make money the same way Google does: by buying and selling media, Mr. McAndrews said. A network is one of the ways Microsoft can make money for publishers, and that's why Microsoft acquired aQuantive, he said.

"It was a recognition that there was search, there was owned and operated display, but in terms of platform and third-party display, Microsoft didn't have the assets it needed," he said. Since Microsoft's acquisition of aQuantive, it has signed about 100 publishers to the platform, he said.

"We believe we're well-positioned in display vs. Google," Mr. McAndrews said. "We'd argue we're leading them in display."

And search? Internally, Microsoft is focused on both display and search; it's expected to make a search-related announcement at the event.
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