Link to the presentation
One thing that stuck out like a sore thumb from his presentation was his attitude to the internet. Not once did he mention how Microsoft was going to make peoples lives easier or make the internet a better place. This is in stark contrast to the values and principles that got Microsoft to the position they are in today. For Microsoft to become a competitor to Google, with regards to the revenue they generate from the internet they need to look back at their history and adopt the principles they had towards personal computing and apply them to the internet i.e. to make the web a better place by making peoples lives more productive and to enhance their internet experience. Currently their attitude is all about profit and about maximising the revenue from existing internet visitors and internet technology. This is opposed to taking the lead and developing the internet for the benefit of mankind. If Microsoft doesn’t adopt this attitude they will always be playing second fiddle to Google, always. Steve Balmer was saying how search is ripe for development, how the basic model hasn’t changed from day one i.e. You get an ad at the top, search results to the left maybe ads to the right and ads at the bottom. OK he may be right but I don’t see Microsoft trying to develop this model and as far as it goes, search is about finding what you want not entertainment, maybe he’s right but we’ll never know until Microsoft start implementing some ”developments” to their search engine. Steve Balmer stated that Microsoft spending 5% of their revenues on Search. That’s massive money but he stated it’s a good risk return gamble. Probably is but considering the cash that’s being spent they still look way behind Google, both in search results (although they are improving massively) and in online advertising.
Steve Balmer also stated that they won’t be successful if they do what Google does. OK, Microsoft wants to take the lead. Fine, they don’t have to do what Google does but they do have to have the same principles as Google if they want to be successful. Google’s principles is basically to encourage the development of the internet, reward people for making good content and reward people for using their search engine by giving them relevant results, basically making the Internet better place for all of it’s stakeholders. Whereas Google is building the highways and helping people to build towns and cities along their highway, Microsoft is making money from the people that travel on the road. They are making money off the traffic that Google is creating. Which one do you think is the leader, the pioneer, the inspiration? Steve Balmer stated that Microsoft is ONLY interested in showing it’s advertising on large websites. Why? So they can control the message and the context that the ads are shown in. This could be one of those cases where the 20% of the largest sites only have 20% of the traffic. If this is the case then this strategy is a loser. Something else Steve Balmer said rang alarm bells “Google doesn’t have a strong presence in display space” I must have misunderstood this as I can’t believe Microsoft has anywhere near the ad display space as Google. I stand to be corrected though. Another point that was made is that Google is overrated ergo online advertising is over rated. Brand advertising (I assume he meant offline) is what creates peoples interest in a product or service, people then search Google for these brands and Google gets the credit for converting these searchers into buyers, as if Google did all the work and it’s a miracle worker. This may be true, at the moment at least, but it is not Google’s fault that this is the way it works. At the end of the day Google provides the platform, it’s up to it’s customers to use it in anyway they see fit. I believe when people truly start to appreciate the power of the principles used by Google this will change, and change beyond all recognition. But Google does not have a patent on good fundamental principles. Steve Balmer was optimistic about MSN, stating that traffic was up 40%. Is it possible that the reason for this is that MSN is the default opening page on internet explorer on new computers? And the fact that the internet is gaining new users who are perhaps unaware that they can change this due to their inexperience. Just a thought.
Steve Balmer stated the lack of revenue from its ad system at the moment was a lack of conversion and a lack of relevancy. Microsoft want to get more revenue from advertisers, to get more revenue from advertisers Microsoft needs more people using their search engine or visiting their online content and providing more relevant ads. Lack of relevancy is down to lack of advertisers. Why does Microsoft have fewer advertisers than Google? A number of reasons, possibly the biggest, is a lack of exposure for their ads, the second, lack of conversion due to ads being shown on pages which are not as relevant as Google ads, the third is possibly that Microsoft’s ad system is harder to use or lacks the functionality of Google ad words. Microsoft’s search revenue is going to increase in direct proportion to the increase in search volume. Nothing else. If Microsoft is looking for a big breakthrough in ad revenue they need to massively increase the ad exposure that their current advertisers get and I don’t see search volume massively increasing, it’s going to have to come from somewhere else. The answer to this one is simple. The other way Microsoft can increase their ad revenue is by having more advertisers. Increasing the number of advertisers will have an exponential effect on the online ad revenues. Advertisers will get more bang for their buck in 2 ways. The first is higher conversion rate on clicks due ads being more relevant to searches and second an increased number of advertisers in itself will bring more revenue. How does Microsoft encourage more advertisers? Microsoft has to increase advertisers ROI on their ad spend and to do this advertisers need highly relevant potential clients clicking on their ads. This is a catch22 situation for Microsoft (at least it should be looked upon as one), they want to increase revenue by showing more ads but they also want their advertisers to have the maximum ROI (at least they should). The advertisers should win on this one. Microsoft may have to show FEWER ads to increase the ad relevancy to the search term. Microsoft’s control of what ads are shown where could be limited and at least less advanced than Google’s control of their ads, this may make the relevancy situation difficult to resolve for Microsoft, especially if the search terms do not have much competition between advertisers.
In a nutshell, lack of advertisers is a major problem for Microsoft. If they can dramatically increase the number of advertisers they have this will sort out a lot of their current problems on their own. A larger number of advertisers will increase the relevancy of the ads shown, it will increase the ROI for advertisers, and it will increase Microsoft’s revenue. Increased ROI for investors and increased relevancy of ads will encourage more advertisers and snowball from there. Microsoft’s problem is that advertisers don’t want to fund Microsoft’s development period while they attract more advertisers. Microsoft has to be ruthless with what ads are shown where to give its ad system credibility. Really this is just the beginning of a long road for Microsoft, even to get to the same level as Google now. The real challenge starts when Microsoft has to start filtering the ads that are shown for particular terms, this is where Google’s technology really comes into play.
