REDMOND, Wash.—Microsoft has big plans in the advertising world, a strategy underscored by its acquisition July 26 of AdECN, which provides an auction exchange for display ads, following its acquisition in May of aQuantive, which owns interactive ad agency Avenue A Razorfish.
“We now have all the core components for our ad network,” said Kevin Johnson, president of Microsofts platform and services division, who announced the deal during his presentation at the annual financial analysts meeting on campus here.
“Microsoft believes the online advertising market is consolidating, and we intend to be one of the top two that remain once this has happened,” he said.
The AdECN deal is a key component of Microsofts strategy to develop a comprehensive search and display advertising platform helping advertisers and publishers to maximize the return on their digital advertising investments.
AdECN, an advertising exchange platform company with about 20 employees, was founded in 2003 and will continue to operate from its headquarters near Santa Barbara, Calif., as part of Microsofts Online Services Business.
The company has technology that serves as a hub where advertising networks can buy and sell display advertising in a real-time auction marketplace. The exchange enables parties to come together and access a larger pool of supply and demand for their clients through a neutral party, Johnson said.
AdECN supports, rather than competes with, the various players in the online advertising industry, he said.
“We believe the addition of AdECN to the Microsoft portfolio is a perfect fit and will create more efficiency for the industry by forming a more robust marketplace between advertisers and publishers, aggregating more supply and demand. This is good for the whole advertising industry,” Johnson said.
“Advertisers will get access to more inventory, enabling more efficient matching of their requirements, while publishers will be able to earn more money per page view due to the higher volume of available inventory,” he said.
William Urschel, AdECNs founder and CEO, said the deal would give the company the capital and resources to scale the exchange at a much faster pace, making it more attractive to the advertising networks and other traffic aggregators looking to better serve their advertisers and publishers.
The deal also underscores Microsofts desire to become what CEO Steve Ballmer described as “an advertising powerhouse.” It will do this by exploiting the breadth and depth it already has, he told attendees at the FAM, citing the 380 million Live identities as well as its page views and query growth.
“We are hellbent and determined to allocate the talent, the resources, the money, the innovation to absolutely become a powerhouse in the ad business,” Ballmer told the analysts.
Chris Liddell, Microsofts chief financial officer, made it clear that acquisitions like AdECN and aQuantive would continue going forward.
“Would we do another aQuantive deal? If it was the right one, we would. Will we do one a year? Probably not, as its not that simple. We could do one next month, if it was the right one,” he said in his presentation at the meeting.
That deal was motivated by Microsofts desire to provide the advertising industry with an Internet-wide advertising platform, as well as a set of tools and services that help its constituents generate the highest possible return on their advertising investments, he said.
In related news, Microsoft Chairman Bill Gates used the analyst meeting to announce that the company has created an applied research organization dedicated to accelerating innovations in search and ad technologies and delivering them more rapidly to advertisers and customers.
The new group, known as the ISRC (Internet Services Research Center), will be part of Microsoft Research, and will work closely with MSN and other product groups, much the way the existing Research teams do.
Satya Nadella, corporate vice president of Microsofts Search & Advertising Platform Group, said this type of collaboration had already consistently delivered advances in search and ad-related technologies, citing search relevance, spam prevention, product search, content extraction and optical character recognition for book search as examples of past collaboration between the Windows Live Search development team and Microsofts research community.
“Were committed to delivering better, faster search results for our customers and more creative, effective ways of delivering value for advertisers. Our investments in engineering in conjunction with ISRC, Live Labs and Microsoft Research will enable us to bring new innovations to the market in a rapid fashion,” he said.
Rick Rashid, senior vice president of Microsoft Research, said the ISRC represents a new model for moving technologies quickly from research projects to improved products and services.
Dr. Harry Shum was named to lead the new group, and has been promoted to a corporate vice president from chief scientist for the Search & Advertising Platform Group.