Understanding Microsoft's Advertising Business

With the acquisitions of aQuantive and AdECN completed in Aug. 2007, Microsoft has become a major player in the advertising industry. Where it once operated exclusively as an online publisher, it now owns an advertising agency and tools and services for advertisers and publishers. With these assets, it hopes to build an advertising technology platform to capitalize on the shift of advertising budgets to new media and demands for greater accountability from advertisers. To reach this goal, the company will have to reconcile conflicting business lines and stay ahead of Google’s similar expansion.

Partners that serve the advertising industry could find new opportunities as Microsoft begins to sell advertising software and services through its traditional software channels. Competitors might find Microsoft lowering prices on some of its products-particularly consumer software-and trying to subsidize products through advertisements. At the same time, Microsoft may open its advertising platform to ISVs, enabling them to experiment with new advertising-supported business models.