Newsmaker: Playing catch-up with Google

At Ask.com, Steve Berkowitz didn't have enough resources to take on Google. Now, at Microsoft, he has plenty of money, but still has a lot of work to do.

Berkowitz joined Microsoft in April, where he was given the task of helping build a cohesive ad-funded business around all of Microsoft's disparate online businesses, from MSN to Windows Live.

"I believe Microsoft can change the world," Berkowitz, senior vice president in the company's online services group, said in a recent interview. "I don't believe I can change Microsoft. I believe I can help it evolve.

In his first sit-down interview with CNET News.com, Berkowitz talked about the challenges for Microsoft, the future of Internet advertising and what it's like being an outsider in Redmond.

We're once again hearing about a lot of advertising-based businesses. Do you have a sense of what good ones are?
Berkowitz: I would say that a good advertising business will be one that really starts to bring relevance. Today, the delivery of the information--the advertising--even within search is still not anywhere near as good as it can be. So, to me, it really is going to be where relevance takes hold.

Today, the delivery of the information--the advertising--even within search is still not anywhere near as good as it can be.

And it needs to evolve from text-based (advertising) to understanding the intent. So, as we get more to the intent factor of users, the advertising will get better and better and better.

I don't think we've seen the potential of what advertising can fund. It's funded so many businesses historically, and the Internet is just a natural extension of that. I think it will fund a lot of businesses going forward. I think it can change the paradigm in a lot of different areas.

We've seen a little bit of the reverse in video. People are paying for TV shows that, historically, got funded by advertising.
Berkowitz: Well, I actually think that it gets back down to convenience. It's about the experience. They've made it so it's a microtransaction, no different than a natural evolution of pay-per-view.

But I think it's a subset (of overall TV viewers). If you think about the total number of videos that people are truly paying for, it's a very, very small portion of the world.

How much time have you spent thinking about moving to ad-based things that have historically been purchased software?
Berkowitz: It gets back to separating out the enterprise from the consumer. I don't see much of a business model change on the enterprise side of the world. There's so much around security and so much around control and so much around the way the enterprise needs to work that I don't really see that changing.

You'll start to see Microsoft work together much more naturally than it has in the past. Instead of focusing on the products, it will focus on the customer of the product. That will break down lines across things, because that's the way the world is going. That thinking will change the way Microsoft operates, which I think will make Microsoft a more competitive company in the consumer space.

What is it like coming into Microsoft from the outside?
Berkowitz: Well, it's kind of like going to a new country. The good news is they speak English and eat French fries, but it's definitely different. I've worked for Robert Maxwell, I worked for Pat McGovern at IDG, I worked for Barry Diller, and now I work for Bill and Steve. So it's kind of an interesting experience.

What's fun about it is that it is an information worker environment, which is very different. It's not a call center environment. So it's fascinating, the intellect. The challenge, of course, is how do you make all this intellect into a singularly focused type of thing, when it has such a broad charter and so many different points of view?

Looking at the MSN business, Microsoft decided before you arrived to shift to its own ad engine. Since the switch, ad revenue per search is down. It seems like AdCenter, at a dollars-and-cents level, has yet to pay off.
Berkowitz: You have to realize that Microsoft has two fundamental strategies right in this space, one which I think of as overarching, which is: How do we own the direct relationship with the advertiser?

That's the AdCenter concept, and not just in search. It's going to be in a broader set of media, where we can deliver a contextual solution by the end of our fiscal year, this year, and do a few other things as we start to look at the world. So it's about that relationship with the advertiser.

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