Microsoft steps big into TV ad world

Microsoft's next advertising frontier is the biggest: television.

The company is buying Navic Networks, a Waltham, Mass., company that makes technologies for presenting targeted, interactive ads on digital cable.

The deal, announced late Tuesday, represents Microsoft's first big step into a traditionally offline medium.

Until now, its focus has been the fast-growing online categories, such as search and display, even as its digital-ad rivals Yahoo and Google moved into selling newspaper, radio and television ads.

"Wherever media is consumed in a digital format on a digital device, we will have relevant ad-technology platforms," said Scott Ferris, general manager of Microsoft's Advertiser and Publisher Solutions Group.

Navic doesn't focus on the standard, one-way TV ads that viewers are increasingly avoiding with their remote controls or digital video recorders.

Instead, its technology allows enhanced commercials designed to be engaging and interactive, along with more efficient placement of targeted ads.

Navic's applications run on digital set-top boxes that can make TV a two-way medium. For example, a 30-second commercial could carry a graphic overlay and functions that allow the viewer to request more information about a product.

Other "addressable advertising" formats Navic provides include telescoping, which connects interested viewers to longer-form ads, and targeted impressions, which overlay information specific to a given audience, such as an advertiser's nearest retail location.

Navic also allows advertisers to place television commercials in "near real time," Ferris said. Using viewership data gathered from digital set-top boxes, as well as additional demographic information, Navic can craft a more finely tuned picture of what and when people are watching, then serve relevant commercials.

"Your neighbor could get a completely different commercial than you," said David Graves, principal analyst at Forrester Research and a veteran of new- and old-media companies.

"My personal feeling is this is going to be really important, and the fact that Microsoft is buying Navic shows that they must think it is, too."

Data on this subcategory of the ad industry is hard to come by, but interest is growing.

Targeted, interactive TV commercials could ease some of the pain broadcasters are feeling as consumers spend more time online, and as advertisers shift their spending to digital media that can accurately track and tune their audiences.

Advertisers still spent $71.3 billion on TV advertising in 2007, including cable and broadcast. That's compared with $21.2 billion in online advertising and $48.5 billion on newspapers, according to a recent Interactive Advertising Bureau industry survey by PricewaterhouseCoopers.

Navic's technology reaches some 35 million digital set-top boxes in North America via cable providers including Charter Communications, Cox and Time Warner. It's not used by any Northwest providers, but Navic has an early deployment of its technology with Comcast elsewhere, Ferris said.

Navic's real-time ad-serving can complement the growing popularity of video-on-demand services, said analyst Graves.

aQuantive — the digital-ad company Microsoft bought in 2007 — has been working on advertising for video-on-demand, which Graves called a significant area of opportunity.

For example, a movie studio hyping a summer blockbuster wants to bombard the market with advertising in the days before the film hits theaters. But if the studio buys an ad on a program that people watch on-demand three weeks after it first airs, the ad loses its impact.

Instead, the studio theoretically could buy available spots during the 8 p.m. time slot the Friday before the movie's release, regardless of the TV show. Its ads would show up on new programs airing that night, or on old programs being watched on-demand that particular Friday.

"It might run in 50 different programs, but you could amass the old-style mass audience of millions of people seeing it at 8 o'clock on a Friday, which is really the way television used to be, and the way a lot of advertisers would like it to be again," Graves said.

Combined with interactive features and targeting, this new form of television advertising could be as good or better than the Internet, he added, and the content is displayed on the biggest screen in the house.

Navic, which will become part of Microsoft's Advertiser and Publisher Solutions Group, could also fit nicely with Microsoft's Mediaroom.

For more than a decade, Microsoft has been investing in television delivered over the Internet, which promises greater choice of channels, more interactive content and personalization. All of these attributes lend themselves to better targeting for advertisers.

Terms of the acquisition were not disclosed. Venture-backed Navic raised about $43 million from several investors. The seven-year-old company has about 82 employees and will remain in Waltham.

With the acquisition, Microsoft is following its biggest advertising rival into television advertising.

Google launched Google TV Ads in April.

That program helps advertisers create commercials and design campaigns to run on more than 90 channels nationally. It follows Google's auction-based model, in which advertisers bid the maximum they're willing to pay to reach a certain audience.

Google has also paired TV Ads with its Analytics tools to tell advertisers how their TV campaigns affected traffic to their Web sites.

Benjamin J. Romano: 206-464-2149 or bromano@seattletimes.com