May 3, 2006 4:00 AM PDT

Microsoft ready to spend--but on what?

SEATTLE--Just what does Microsoft plan to spend all those billions of dollars on?

That's the question that Wall Street has been asking since last week, when the company announced that it would pay out far more than expected in the next 15 months--roughly $2.4 billion according to estimates--as it bulks up several of its new business efforts, particularly its online services.

Investors may get some answers this week, as the Redmond, Wash., software maker hosts an annual gathering for hundreds of MSN advertisers and other ad industry notables. Microsoft is expected to give further details of its strategy and to show off some of the earliest fruits of its labors.

Much of Microsoft's focus--and spending--centers on online advertising as the company bulks up to better compete with Google and others. Its biggest bet in that area has been its decision to switch from Yahoo's ad-serving technology to its own homebrewed alternative, named AdCenter.

Over the long haul, the company hopes that AdCenter will prove more adept at targeting advertisements to the individual user, in the process sending more revenue its way. That was not the case in the past quarter, though.

That's when Microsoft shifted the majority of its U.S. search advertising over to the test version of AdCenter. However, revenue per search actually fell, as the company is still ironing out the kinks in the product and building its base of advertisers.

Credit Suisse estimates that Microsoft has moved from an ad network of 300,000 advertisers to one that, for now, stands at less than one-tenth that figure, according to a research note from the firm's analyst Jason Maynard.

"While we assume that the number of advertisers will climb substantially over the next 12 months, we are underwhelmed with the stickiness of the Microsoft Web properties," Maynard said in the research note last week.

Executives insist that the move is right for Microsoft in the long term, whatever growing pains it is feeling now.

Images: AdCenter stages

"Further growth of AdCenter is key," CEO Steve Ballmer wrote in a memo sent to employees after the company reported earnings last week. "Our goal is to create the Web's largest advertising network, giving us an engine that will enable us to monetize our services and compete against Google."

On the agenda
The software maker is expected to demonstrate an updated test version of AdCenter at this week's conference, with a final version targeted to be ready by June.

Also on tap should be a clearer explanation of where Microsoft is headed with MSN, its online property. Many of MSN's existing services, such as Messenger and Hotmail, are being re-fitted with the Windows Live banner. However, the company is pushing ahead with a dual-brand strategy. At the meeting, it is expected to make its case to advertisers as to why both outlets make sense for their marketing bucks.

And it's not just Web sites that Microsoft may be looking to fill with ads.

See more CNET content tagged:
advertiser, MSN, software company, Microsoft Corp., Google Inc.


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Maynard's got it right.
MS can't just throw money at problems and expect to compete. They've gotten fooled into thinking that money solves problems or fixes business plans. With the wrong business plan, you can spend more AND lose more. Case in point: MSN search had a sweepstakes that rewarded you for searching on their website. Their search share actually declined in the month since implementing it.

And duplicating their websites under a second, confusing 'Windows Live' brand is loony.

Finally, their technology infrastructure is a nightmare. Lots of folks have lost their hotmail accounts, MSN goes down more often than other websites and basic things like their website don't have their best search enabled.

It's MS's own software that is killing them. Creating another Google actually wouldn't cost this much, because they use Linux servers and off-the-shelf technology. It's their management of these servers that is one key Google advantage. Throwing money at the problem won't help until MS actually has better software products or better engineers. What they have now is supposedly better marketing, and I'm starting to seriously doubt that.
Posted by solomonrex (112 comments )
Reply Link Flag
Its more than 'Active', its 'Live'
"'Now is not the time to scale back the scope of our ambition or the scale of our investment', Ballmer wrote."

This sounds familiar .. its the kind of thing I heard in the ubiquitous Vista OS hype. What will be left of it a few years from now?

And what is with renaming everything to Live blablabla? Is it to make it sound as if there is more or newer things happening at MS? (cause they're so Live with energy over there)

On a basic level though, it is a necessary branding attempt. Anyone can name Yahoo this or Google that. But Passport, Carpoint, Messenger, Update, Agent, Hotmail, Encarta, MoneyCentral? MSN isn't cutting it, that's for sure.
Posted by javierlopezroman (28 comments )
Link Flag
Why not on freeware?
OSX and Linux come with lots of free applications, windows come with.. calc and solitaire.

There is clean freeware out there, but the most popular stuff comes with spyware or is _persistent_ about needing to run on startup and taking over file associations.

Maybe MS should release a free graphics program, a photo editing/management tool, a tool to convert audio and video files into other formats (an answer to iLife), backup software, a free WYSIWYG HTML editor etc.

There are lots of tools they could release as free.

They can blow billions of dollars and have nothing to show for it, but they could make the company interesting again for only a few million.

Releasing some of these things as freeware will also reduce the amount of spyware people need to install and improve the overall security of the Windows platform.
Posted by Dachi (797 comments )
Reply Link Flag
Google needs a Mac and Linux strategy.
Sure, Google can complain to regulators that Microsoft is illegally tying its services into its operating system -- "Windows Live," that's exactly what they're doing -- but ultimately Google will want more eyeballs on Mac OS X and Linux desktops, where Microsoft either provides only the office suite or practically nothing at all.

Why does Google have so many Windows-only freeware apps? Microsoft is competitive in that field.

(Full disclosure, I'm on a Windows PC right now.)

Google can get ahead by becoming the kings of interoperability. Let me run the same Google Pack features on any platform I'd ever want to use.
Posted by (54 comments )
Reply Link Flag
Google - Windows-only freeware apps
"Why does Google have so many Windows-only freeware apps?"

It's cost-ineffective to write freeware apps for platforms that have a miniscule market share.
Posted by john55440 (1020 comments )
Link Flag
Message has been deleted.
Posted by Pop4 (88 comments )
Reply Link Flag
Pay users?
Maybe they're just going to pay everyone to use MSN search. They're already doing these prize contests for hotmail users who try the new hotmail "kahuna" beta.
Posted by chris_d (195 comments )
Reply Link Flag
Search box
The IE7 search box should give Google little worry ... most of the tech-savvy Internet users are on Firefox, Safari, and Opera -- the majority of IE7 users are slow to adopt new features. They probably won't use the search box, but go to a search website like usual, or else just rely on their Yahoo/Google toolbar as before.

Doesn't IE default to anyways? Why don't most people use this page to search then? My dad, who is not tech savvy, leaves his homepage, but always searches for "google" there in the search box, then clicks the Google homepage link, and searches again.
Posted by alucinor (71 comments )
Reply Link Flag
MS and adware
It seems that Microsoft has finally gone off the deep end and done it: promote adware. No doubt future versions of Windows, or even-low cost versions, will come bundled with AdCenter (MS's version of adware). When the company that makes your OS promotes that you recieved unwanted ads, what does that say about the OS?
Posted by Sentinel (199 comments )
Reply Link Flag
Ads from Microsoft are bad.
An ad supplied by Microsoft is the worst kind of ad because they are evil. A Google ad on the otherhand gives me a warm fuzzy feeling. If you do not like a company, it doesnt matter what they do, it always feels bad coming from them.

<a class="jive-link-external" href="" target="_newWindow"></a>
Posted by t8 (3716 comments )
Reply Link Flag
Billions of $s spent on hijacking your screen real estate
Spending $billions on finding better ways for ad agencies to ram
their messages down our throats is not long-term R&#38;D. I'm glad
I'm not running Windows, because your machine obviously isn't
your own.
Posted by Ian Joyner (66 comments )
Reply Link Flag
TXU, GE, EarthLink put $130 mln for Broadband ove
Is MSFT getting late again... just following GOOGLE, EARTHLINK, GE, GOLDMAN SACH in new technology
investments ?
READ: <a class="jive-link-external" href="" target="_newWindow"></a>

CURRENT Communications Announces $130 Million in Investments in Broadband over Power Line Networks

TXU, GE, EarthLink and Sensus Join CURRENT to Improve Electric Grid Efficiency, Reliability and Security, Offer Consumer Broadband Service Alternative

CURRENT Communications Group, LLC, the leader in broadband over power line (BPL) networks, announced today $130 million in equity investments from new and existing investors to accelerate the deployment of BPL-enabled "Smart Grid" electric utility networks and alternative broadband communication services.
Posted by 200mbpsBPL (102 comments )
Reply Link Flag

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