Microsoft has never given up in the field of advertising exploration. In fact, the company already has ambitious advertising plans to double its size and hit $20 billion in annual revenue.
Rob Wilk, head of Microsoft's advertising business, was interviewed recently about the company's strategy for getting there. Recently, Microsoft also signed an exclusive advertising sales agreement with streaming media giant Netflix and is building an Xbox advertising platform.
As early as 2015, Wilke considered joining Microsoft's advertising department but expressed doubts that the company would actually commit to advertising. Previously, Microsoft wrote down almost all of its assets after spending $6.3 billion to acquire display advertising company aQuantive, sold its Atlas ad server to Facebook, and handed over the display advertising business to AOL.
Today, Wilke manages Microsoft's advertising business, which generates about $10 billion in annual revenue. In 2022, the unit acquired AT&T's advertising unit Xandr, which helped it secure an ad sales deal with Netflix. Wilke's team also has high-level support, with Microsoft CEO Satya Nadella lavishing praise on the ad unit's performance on a recent earnings call.
Wilke said in an interview that Microsoft is now looking to double the size of its advertising business, but he did not provide a timeline for when that might happen. It is estimated that if Microsoft's annual advertising revenue reaches $20 billion, it will overtake Tencent to become the world's sixth-largest digital ad seller.
But Microsoft is challenged by a gloomy economic outlook that has slowed the growth of advertising giants such as Meta and Google, and it also continues to face stiff competition from TikTok, Amazon, and Apple. Despite these challenges, Microsoft could end up among the four largest global advertising giants, according to advertising consultant Matt Prohaska.
Microsoft Advertising needs to integrate all product audience data
Properties available to Microsoft's advertising division include Bing, Xbox, MSN, and hundreds of other sites that use Xandr to sell digital ads. Meanwhile, Microsoft has recently introduced vertical-specific ad formats, including credit card and car ads. The company also expanded Microsoft Audience Network to 66 new markets in October.
Ad buyers say Microsoft needs to make it easier to buy ads by rolling out easier ways to reach and leverage audience data across its portfolio. But one ad industry technology executive revealed that there is even little communication between Microsoft teams these days. In response, Wilke said he wanted to make it easier to buy ads for these properties, acknowledging that we have a lot of funnel work to do.
Microsoft also needs to differentiate itself from rivals like Google, which has similar assets but a much more mature advertising business. Wilke said Microsoft is more "partner-oriented" than Google. But for many ad industry watchers, the Netflix tie-up gives Microsoft a new point of differentiation.
Netflix launched a new ad-supported subscription service in November. As the service's exclusive advertising partner, advertisers can buy ads through the Xandr demand-side platform, and Microsoft will receive a resale fee from it. Although Netflix initially demanded a CPM (cost per thousand) above $60, many advertising experts predict strong demand from big brands over time.
Tom Triscari, a programmatic economist at market research firm Lemonade Projects said,
it didn't take Netflix long to generate $10 billion in ad sales. Scarce and increasingly valued.
The test for Microsoft is how many people will actually buy ads once the hype dies down, and it's also unclear whether Netflix will continue to support Microsoft's ad business in the long run. It has previously been reported that Microsoft beat rivals such as Google to win the Netflix contract because it offered a more competitive revenue guarantee.
But sources familiar with the details of the deal said the tie-up would be short-term, and Netflix's hiring of Snap advertising executives Jeremi Gorman and Peter Naylor suggested the company may Hope to bring this all in-house at a later date.
Games may become an important advertising asset for Microsoft
Gaming will be another key driver of growth in Microsoft's advertising business. If Microsoft can successfully acquire game developer Activision Blizzard, its advertising revenue will be greatly improved, but the proposed $68.7 billion acquisition is currently facing strict regulatory scrutiny. But ad buyers say it could be a unique selling point for Microsoft if in-game ads can only be purchased through Xandr.
Meanwhile, Microsoft already sells ads on the Xbox home screen and is developing a platform to bring ads to free-to-play and Xbox cloud gaming.
John Lee, a former Microsoft ad executive, said that while Microsoft's ad sales team has made some progress in starting to sell Xbox inventory, it's still not enough without bundling it with the rest of Microsoft's ad portfolio. would be too much of a success. John left Microsoft last month to join the advertising agency Clix Marketing.
Wilke said Microsoft would be wary of placing ads that gamers would find acceptable. He said,
We'll do what we usually do: that is we won't be the fastest, but we will be the most considerate