July 7, 2015
Last week, Microsoft (MSFT) chief executive Satya Nadella, in a mission statement to employees following a major executive reshuffling, said the company will face some “tough choices” moving ahead to grow. Well, here we go.
Only a few days later, the vendor pegged AOL, newly acquired by Verizon (VZ) in a $4.4 billion buyout, to take over sales of the software and service giant’s ads, including mobile and video placements, on platforms MSN, Outlook and Xbox in the U.S., U.K. and a handful of other markets. AOL’s portfolio of site includes the Huffington Post, Engadget, Adap.tv and TechCrunch.
Some 1,200 Microsoft Advertising staffers will move over to AOL in the arrangement and AppNexus will sell ads for Microsoft to some 39 markets worldwide. In a second part of the deal, Microsoft’s Bing search engine will replace Google on AOL for the next 10 years.
In effect, Microsoft largely stepped out of the $74 billion display ad business.
Senior staff, including Rik van der Kooi, Microsoft Advertising and Consumer Monetization corporate vice president, and Frank Holland, Microsoft Advertising and Online corporate vice president, will stay on to aid the transition.
“Microsoft and AOL share a commitment to customer service and collaboration, and together we will create a powerhouse media offering with a remarkable set of differentiated assets,” wrote van der Kooi and Holland in a blog post. “Our advertising customers will have one consistent experience as we transition our sales and trade marketing employees in these nine markets to AOL, subject to compliance with local law and employee consultation obligations.”
The deal, wrote van der Kooi and Holland, evidences Microsoft’s strong points of search, search ads, content and consumer services while shedding itself of the ad marketing it no longer wants.
“We remain as committed today as we have been in the past decade to digital advertising and its effectiveness in delivering free services to consumers worldwide,” they wrote.
But there may be more to the equation, as Business Insider suggests, that involves Nadella’s overall corporate makeover and starts with advertising sales not mapping to his vision of Microsoft as a productivity and platform vendor in the mobile-first, cloud-first world.
As Business Insider points out, Microsoft’s interest in the segment has ebbed of late as its share of the the ad market slipped yearly since 2013 to 1.2 percent and its display sales fell 15 percent in 2014, even as the overall market rode upwards by some 22 percent.
But that’s not all. Last year, Microsoft closed its Xbox Entertainment Studios content unit and subsequently began laying off members of its global advertising sales team.
Where does all this point? At the same time as Microsoft was unloading its online ad business to AOL it began pumping up Bing’s viability.
“We are deeply committed on the search side. We see it as a business that we’ve built out over the past six years as sustainable and standalone,” van der Kooi told Marketing Land.
“[Bing] is a multibillion dollar business, and it does pay for itself right now,” he said. “Our commitment to Bing is very deep and therefore critical for us to continue to monetize that business,” he said.
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