Microsoft and the money behind MSN

Though it may be years down the line, packaged software will one day likely become a thing of the past. This is what Chris Dobson, MSN International’s vice-president of international sales and trade marketing, believes. sat down with Dobson earlier this week to discuss the future of Microsoft’s Windows Live strategy.

ITB: Can you tell me about your plans in the consumer space for Windows Live?

Chris Dobson: Microsoft has been on this journey only for the last two or three years, where all of a sudden advertising as a revenue stream has become more important for Microsoft as a whole and will continue to do, so as it was just for MSN. Which was almost like an experiment in some respects. Microsoft, I think like most of us, believed the world of monetization online would be subscription. And when it turned out that wasn’t the case, the outlier in the organization, which was MSN, was quietly selling or providing Web-based software services like Hotmail and Messenger and monetizing them entirely through advertising. And in fact monetizing the whole division through advertising — well, 90 per cent anyway.

And whilst that was going on, there was a sort of parallel track at Microsoft where a similar revolution was happening where instead of having everything like Office on your PC with all your data, there was this move to take data and even the programming itself remote — driven by Wi-Fi and broadband penetration. You can access information on this or that or any device because it’s not actually in any machine.

So that sort of parallel world was going on in the pure software play at Microsoft. And where they married is that we demonstrated that Web-based services could be funded by advertising. And Microsoft was moving its traditional businesses like Office in a Web-based direction rather than in a CD in a box direction. So that put Microsoft in a unique position of having a foot in both the IT camp and media camp.

And they didn’t really realize that the amount of money involved in media was so colossal. And when we looked at it, it looked like the online world is going to be worth about $40 billion. So all of a sudden it’s going to be a serious amount of money that’s going to be shifting.

So what’s also happened is consumers have really taken control. Consumers want to be in control of what they see. So it became obvious to us that the portal as we launched it 10 years ago as MSN was actually not in keeping with how consumers wanted to behave online, either. Because some of them want to be in control online. Some of them still want editorially-rich pre-programmed content. So what we’re trying to do with Windows Live and MSN is create this soft of continuum where in the Windows Live end of services at is very much about content that is either produced by the user or organized by the user themselves. If it’s on, it could be any content anywhere on the Web pulled in by an RSS feed. But on the other side, MSN stands for deep content in our portfolio. So MSN will carve out its niche as being a content play. Whereas the services, which will include Mail and Messenger will come under the banner of Windows Live.

ITB: How will Vista factor into the equation? 

CD: Not surprisingly, Windows Live will bring literally to life Vista when Vista launches , whenever it launches, because Windows Live is being designed to work really well with Vista and to provide that sort of sparkle if you like to provide a Web access point to Vista. Now before you ask, it won’t be pre-loaded and it won’t be compulsory and all of that. But it will be there as a choice for consumers to easily access things that they’re used to.

So all of our world has converged and sitting over it now is us (MSN) in a fortunate position — where we’re the people that know about the media world. We’re the people that sell to agencies and sell online advertising.

All that’s changing is our portfolio is changing and will increase over the next 12 to 18 months to encompass pre-existing opportunities that will all of a sudden open up to monetization through advertising.

ITB: Will the advertising be on a one-to-one basis?

CD: In terms of targeting? We do targeting now actually, but I think the next big revolution for targeting for us is behavioural. At Microsoft we’re conscious of the security aspects, so we don’t want to be doing anything which is going to be seen as subversive by our consumers. We want to be open about it. we’re even doing an experiment at the moment where there’s a tab against the ad which basically says why did they get this ad. A consumer can click on it and it says, “Because we think you’re interested in cars. Are you interested in cars?” And we’re actually giving consumers in this trial the ability to modify their own profile. It’s an interesting sort of anthropological experiment because people are sometimes in denial about what they’re really interested in. And yet their behavioural habits point in a different direction.

ITB: How do you target now and how do you plan to target with the behavioural model? 

CD: We target now based on (Microsoft) Passport data. So we know age, sex. If we’ve been given the data, we know occupation. But the reality is the most reliable data is sex and age. People tend to not lie about their date of birth because they don’t have to. And also their IP address so we can get their location.

In terms of behavioural, we’re aware and sensitive of the fact that consumers worry that Big Brother knows too much in terms of their journey through search engines, other sites and what have you. And we’re working on how we can be upfront about the fact that we are gathering that data — but hopefully to their benefit.

So we want to get to a point where we can base ads that are based on the journey that our consumers had in the last few days. So if we show them a BMW ad, we know that they’ve been on the Audi site in the recent past.

It’s a journey, because I think Google has fallen afoul of the black box nature of some of its data. And I don’t think we want to follow that.

We’ve always been very vocal about privacy and security in computing. And that’s one of the reasons I think Vista slipped: We wanted to make sure that those aspects were ready. We’ve got a new philosophy now that we’ll launch products when they’re ready rather than launch and hope for the best, which is a much more consumer-friendly, responsible way of thinking about it.

ITB: How do you think Google has fallen afoul?

CD: I think because they tend to operate their system in a sort of black box. So advertisers get great results, but they don’t get much insight into why or how it’s refined. Google sort of keeps that information to itself.

When we launch Ad Centre — which is our search product — we’re aiming to increase the amount inter-activity between the tool and the advertisers to allow them to have deep insight into what’s actually happening in real time. Even down to the extent where they can be checking certain key words and the effects on awareness — which we think are a great planning tool. Because we’re trying to be as open as we can. It may not be true, but the perception we have from talking to advertisers is they don’t feel that that’s the case with Google. Google is tremendously successful but it’s a bit of a mystery organization if you’re sitting outside of it.

ITB: How long do you plan on keeping the behavioural data?

CD: I don’t know. I don’t think it’s decided. I think it’s less about the length of keeping it and more about being upfront that you’re doing it. It may be 30 days, it may be less.

But targeting in general is the sort of forgotten piece of our line. It’s the bit that should be the absolute selling proposition for our line. And it has yet to be really developed in a way which is fulfilling that promise. As you said, one-to-one advertising.

ITB: What’s the strategy for Windows Live in the enterprise space?

CD: If you take the vision to the nth degree, then the core assets of Microsoft could well be funded by advertising rather than be purchased. And in some areas where piracy is a problem, you could see a sort of value proposition that said, look, don’t take a pirated copy, take the real thing — get all the updates and all of the security — but be aware that there will be some advertising.

ITB: Do you think packaged software will eventually disappear? 

CD: I think ultimately it could do. I think ultimately the journey could be complete for remote software. The world requires a ton more Wi-Fi, a ton more transmission speed and all the rest of it to make that real. Because if you look at Windows Live Mail, it looks and feels just like Outlook, and in fact, you do right-click drag and drop — all those Things that you’re used to doing on your machine, and yet it’s happening remotely.

But it’s entirely dependent on transmission speed of the broadband you’re connected to to make that a seamless experience. I think you need a ton of infrastructure before you get away from boxed products completely.

ITB: When do you think it’ll happen?

CD: Years. It’ll be prudent for a company like Microsoft to do it both ways for as long as there is demand It’s like the analog-digital TV switch — you’ve got to do both for a long time until it becomes uneconomical to do the last few people who insist on buying the boxed product.

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Jim Love, Chief Content Officer, IT World Canada

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