SMG Inks Ad Deal with Microsoft as It Fights to Retain Tech Giant's Account

Deal Comes Weeks After Start of Microsoft Agency Review that's Putting Media Incumbent SMG on Defensive

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Microsoft inked a partership with Starcom MediaVest Group that commits the agency to buying inventory across Microsoft properties such as Skype, Xbox and MSN.

But here's where this deal gets complicated: SMG is also Microsoft's media agency, and they're fighting to retain the business.

Microsoft's Xbox One dashboard
Microsoft's Xbox One dashboard

Just weeks ago, Microsoft set the wheels in motion for an agency consolidation review at the holding company-level. So the deal means that just as SMG is pumping dollars into Microsoft, they're pitching to keep the Redmond tech giant as a client.

The companies declined to give a dollar value on the deal, or its duration. They did say it involves a "first look" at consumer research from Microsoft. Together, they'll create ad products that Microsoft Advertising VP Steven Kim said "nobody has thought about" for brands like Skype. "It's about bringing video to life across different screens and across multiple screens at the same time," Mr. Kim said.

It comes as Xbox readies a slate of original content, and premium video buys dominate the conversation around this year's Digital Content Newfronts and TV's upfronts.

But the partnership isn't exclusive to SMG, according to Mr. Kim. Even so, SMG is in a different position than the other agencies Microsoft serves. The partnership could give SMG leverage with Microsoft at a time when its client business is vulnerable.

SMG's MediaVest is the three-year incumbent on Microsoft's massive media buying and planning account -- SMG supported Microsoft's $730.4 million in domestic measured media buys in the first 11 months of 2013, according to Kantar Media -- and will surely be defending the business with its Publicis counterparts. There's no evidence directly tying the shop's new ad deal with Microsoft to its strategy around retaining the client, but a deeper commitment to the client's ad team certainly doesn't hurt its chances. Talks around the deal began months ago, said the agency group.

The deal also adds to a historically bumpy relationship between Microsoft and SMG parent Publicis Groupe, which also owns media agency network ZenithOptimedia. The French holding company entered into a commercial agreement with Microsoft in 2009 when it bought digital agency Razorfish from the tech giant. At the time, execs put the commitment at "a couple hundred million dollars" annually for ad inventory.

A year later, Publicis was having trouble meeting the media-spending commitment to Microsoft and industry executives said the group could face a penalty if it failed to meet the spending levels committed to Microsoft search and display.

Regarding the new deal, a Microsoft spokesman said, "This is not a part of the agreement we struck with Publicis some years ago – complementary to it, but technically separate."

Last week, Microsoft named 22-year veteran Satya Nadella the successor to outgoing chief executive Steve Ballmer.

Microsoft's global ad revenue was $2.9 billion in 2013, while Facebook's was $6.4 billion and Google's $38.62 billion, according to eMarketer.

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