Soft sell: Microsoft embraces humility

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Microsoft Corp. isn't going to let AOL Time Warner's highly publicized cross-media deals get it down.

Microsoft's MSN network of sites has become an online behemoth, ranking second to AOL Time Warner among digital media properties in May, according to Jupiter Media Metrix. The company is shopping what company officials are calling next generation ad products that will try to make good on MSN's promise to become the "best in [marketing on] digital devices," according to MSN VP Yusuf Mehdi.

That positioning is meant as pointed contrast to AOL Time Warner's current push to maintain advertising leadership by enticing marketers to buy into a bevy of deals covering its properties in TV, print and interactive. "They're big on cross-media, and we're really about being best-of-breed in digital devices," Mr. Mehdi said in an interview last week. He boasted, "We think we're going to take direct marketing to the next level with these products."

Microsoft's new ad units follow both the direct response model and formats that are surprisingly close to print and TV, aiming to help marketers achieve brand awareness. One of the new innovations will be an opportunity for advertisers to briefly "own" the MSN home page, an option not currently available on any MSN sites, but one that has started to gain popularity with other online properties such as Yahoo!

Mr. Mehdi, who described the format as "almost like owning the cover of the magazine, but not quite," said the unit, which will probably launch around the time of the site redesign in the fall, will look much like the integrated content program the company ran surrounding Tiger Woods prior to the U.S. Open. That promo included a number of links to products tied to Mr. Woods, along with related content.

Like many of its competitors, Microsoft is working closely with the advertising community to test whether its more than three dozen potential new ad units-which run the gamut from Interactive Advertising Bureau standardized units to innovative uses of instant messaging technology-will gain traction with advertisers.

Though many of them are more intrusive than the beleaguered ad banner, that isn't necessarily a positive. There is general support for the proposed units, but some ads, such as a full-page interstitial that some in the market found too damaging to the user experience, might never see the online light of day. The company began previewing the new formats to advertisers in April at its annual Strategic Account Summit.

In another step toward its mission to perfect its new advertising strategy, the company has consulted closely with Universal McCann, the media unit of Interpublic Group of Cos.' McCann-Erickson WorldGroup. McCann is Microsoft's ad agency.

According to Mark Stewart, executive VP-regional director of Universal McCann's North American unit, Microsoft's approach is meant to counter the arrogance that has governed the relationship between online media properties and agencies, a point that may be just as important as its technological innovation. "I just think that they've regrouped and they're looking at the marketplace needs and they're looking at taking the high road," he said. This new, humbler Microsoft met with other McCann executives as well, including New York creative director Nina DiSesa, to evaluate its ad programs.

Mr. Mehdi said Microsoft also used its agency to gain entree to the agency's client list, which includes General Motors Corp.'s Buick, Unilever and Coca-Cola Co. McCann did not gain any additional compensation for its role, Mr. Mehdi said.

One of the other ad units in discussion runs along the lines of CNET Networks' super-sized ads-until, that is, they shrink to a more moderate size automatically once consumers have had a good look at them. Microsoft is also touting sponsorship opportunities in which advertisers can buy 15-second or so streaming video bookends as users enter and leave a site.

Mr. Mehdi seemed particularly excited about how marketers could potentially use XML-a language that allows sites to operate more effectively with one another-to create advertising messages on the fly. In one usage that the company hopes to roll out soon, marketers could own scrolling headlines on MSN sites about their products, and change them remotely when they need to immediately promote, say, a new airfare or car lease deal.

Advertising projects that are not as far along include uses for Microsoft's instant messaging technology, called Messenger, as an advertiser communications tool.

Although Mr. Mehdi said the new units were unrelated to the company's rollout of the Microsoft Office XP operating system, which integrates the Internet more fully into the working environment, he said that in the future, there could be ties between advertising and the other Microsoft products. With its new approach to helping advertisers use interactive communications more effectively, he said his goal is nothing less than "how to bring all of the assets of Microsoft to bear" on making it happen.

Microsoft doesn't break out ad revenue from online properties. However, it acknowledged in a Securities and Exchange Commission filing that its MSN network revenue growth slowed in the quarter ended March 31, "due to the decline in the online advertising marketplace."

Microsoft generated revenue in that quarter of $497 million from its consumer software, services and devices group, which includes MSN network revenue, subscription revenue and some other offerings; group revenue was up 17% over the same period a year earlier. In addition, Microsoft generated $129 million in revenue for the recent quarter from an e-commerce group that includes properties such as Expedia.

By contrast, AOL Time Warner's America Online generated $721 million in first-quarter revenue from advertising and commerce, up 37%.

Mr. Mehdi said Microsoft's ad revenue doubled for the fiscal year ending June 31, 2000 and said he expected it to double this fiscal year as well.

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