Microsoft applauds audience

For years, Microsoft software developers thought they were assembling Web-based tools that would allow people to keep in touch anywhere, anytime.

"Four or five years ago, our mission was to build the largest, most profitable communications network on the planet," Blake Irving, corporate vice president of the Windows Live Platform Group, told advertising executives in Redmond earlier this week.

That's until Microsoft hired Joanne Bradford, its chief media officer, in 2001. "What she told me was, 'You're not creating a communication network, you're building an audience,' " Irving said.

The company says that audience today includes 465 million users a month of e-mail, instant messaging and other Microsoft products. It's poised to grow even more with the introduction of Windows Live, the Web-service delivery center Microsoft is developing.

On Thursday, Microsoft launched a broad platform called adCenter to allow advertisers in the U.S. to access that audience and eventually tailor messages that penetrate to consumers' innermost digital lives. AdCenter has been available in Singapore and France since September.

"We are humbled by both the challenge that we have in front of us, and the opportunity to provide the technology to really make this marketplace better for consumers and marketers," Microsoft Chief Executive Steve Ballmer told the ad execs Thursday.

His company is trailing Google and Yahoo! in the fast-growing online advertising market, which could be worth $18.9 billion at the end of this decade, according to figures released last summer by Jupiter Research.

Microsoft seeks to differentiate itself with adCenter's features and reach, which includes television delivered via broadband, mobile devices and video games.

To that end, the company confirmed Thursday its purchase of Massive, which places advertising in video games. The acquisition, news of which leaked out last week, was reportedly worth $200 million to $400 million, though Microsoft was mum on its value.

Microsoft is pumping a huge amount of money into adCenter and the digital properties on which it will sell ads.

"We will invest as much in this online opportunity in [research and development] as any of the other big players in the market," Ballmer said.

Specifically, research-and-development spending in the company's MSN online division will reach a projected $1.1 billion in the next fiscal year, which begins July 1, Ballmer said.

That's more than double the $500 million spent in fiscal 2005.

Capital spending in the division will also grow tremendously, from $100 million to $500 million in the coming fiscal year, presumably on buildings full of computer servers, such as the ones planned for Quincy, Grant County, to store the huge quantities of data underpinning Windows Live.

Last week, Wall Street reacted coldly to Microsoft's planned spending, about $2 billion more than analysts' expectations. The company's stock took its biggest one-day fall in five years a week ago after it released projections for fiscal 2007.

Microsoft shares rose 27 cents, or 1.2 percent, to close Thursday at $23.44, a touch higher than the 52-week lows hit earlier in the week.

Irving, the Windows Live head, described how advertisers can reach consumers in an increasingly "disaggregated" world.

"Windows Live is a response to the notion that I'm me and I want to take my own experience with me, wherever I go on whatever device I happen to be using," he said.

Irving listed as examples home and work computers, Xbox 360 video-game console and mobile devices.

Microsoft assembles "all these little digital touch points" for advertisers to reach those consumers through a variety of devices, Irving said.

Not only that, but Microsoft's technologies promise advertisers a detailed look at consumers' online behavior to better target specific advertising campaigns.

For example, Irving visited the Web page of a family friend interested in Cabo San Lucas, Mexico, and gardening. Books on those subjects from Amazon.com were posted in a corner of the page.

Other possibilities include "gadgets" added to an individual's Live page. Irving demonstrated a gadget, sponsored by snowboard-gear maker Burton, that updates snow conditions. In another example, he used a Home Depot-sponsored gadget.

AdCenter recognized his interest in home improvement and automatically put related advertising content — banner ads for Black & Decker, for instance — next to his e-mail.

Microsoft sees an opportunity to gain ground on Google and Yahoo! through its strong franchise in video games.

The company is offering advertisers a conduit to the valuable young, male demographic playing Xbox 360 and its online-gaming component, Xbox Live.

"If you go on Xbox Live in prime time, you will find more people in the 18- to 35-year-old male audience than on any prime-time television show," said Robbie Bach, president of Microsoft's Entertainment and Devices Division.

Video games are unique in that players aren't subject to the disruptions or distractions that TV viewers or people browsing the Internet have become accustomed to.

With its new Massive acquisition, Microsoft will be developing ways to insert advertisements into the games themselves.

"You can take your message and imbed it in that immersive environment," Bach said, "and they get it and they may not even know they got it."

Benjamin J. Romano: bromano@seattletimes.com