Some random thoughts I've been playing with this week. It's very common to see in the blogosphere the lamination that Microsoft is trying to "do too much" (and I'm paraphrasing politely here). This is usually following up by question of "why are they trying to do so much, they must be greedy and evil and that motivates every thing they do" and "they simply can't stand seeing someone else win."
Now as Microsoft is a public company we have an obligation to shareholders and employees to grow our business. Of course the bigger you get the harder it gets to do this. As others have noted despite Microsoft's languishing stock price Microsoft has grown at a rate of about 4 billion dollars a year over the past few years despite these challenges. Another way to look at it is like this. The software market is currently defined as about a 131 billion dollar business. Microsoft derives about 54 billion of that and is probably getting about half the profit that is derived from the industry as a whole. Do I wish our stock was doing a little better based on that performance? Sure I do, but all in all so far, these are good problems to have.
Now let's look at a specific part of the advertising business called Web search. Google has about 55.8% of this business versus 22.7% for Yahoo and 9.6% for Microsoft and the rest is divided among everyone else. Web search is a small (albeit very important and visible part) of a much bigger business though, which is advertising. The advertising market is about a 573 billion dollar business. So, just like the rest of the technology world Microsoft needs to be looking at that business as it searches for growth.
I'll submit that Microsoft is doing exactly what it should be doing right now, which is building an ecosystem or platform with it's technology that can allow it to capture a piece of that business. What do you need for that? For starters you need a way to touch all of the mediums that play in that world. That includes the digital devices that advertising is designed for--things like the Web, mobile, the desktop, television, IPTV, gaming platforms and TNBT (The Next Big Thing). It includes the systems for media buying, distribution and management of those assets. It includes the tooling and platforms that let people use skills across a continuum to create experiences that can be supported by the advertising model. Finally, it includes concepts like sustainability, community building, co-creation and audience-generated content.
So if you're Microsoft and well on your way to the next phase of your cultural existence what would you do? Focus on an industry where you already dominate and where the market seems to think you've added all the economic value you can or look elsewhere to leverage, supplement and advance that knowledge into other industries that can benefit from it?
Everything is a part of a bigger picture at any company that gets big. Our foray into designer tools and cross-browser platforms that can integrate across the spectrum of our services platforms are the big bets that any company needs to make to play effectively in the world of advertising and tackle the new challenges that customers and business face than can address the entire customer experience and value chain. Do we want to be competitive and win in these new markets? Sure. But it's an awful big market and there's room for a lot of success and healthy competition among the technology and advertising ecosystem.
Of course advertising is only part of this picture and the big bets that Microsoft is making. In future posts we'll look at other areas that require focus.
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