MSN Still Going Nowhere Fast

Includes: GOOG, MSFT
by: Yankee Group

By Carl Howe

One of my compatriot writers on Seeking Alpha, Henry Blodgett, says that MSN is still going nowhere fast.

It is worth noting that Microsoft (NASDAQ:MSFT) still hasn't made any headway in the search-and-portal game and, in fact, is falling farther and farther behind. As a result, it is not surprising that Steve Ballmer is now warning media companies that Google (NASDAQ:GOOG) is the Evil Empire -- because no other competitive tactic has worked.
Microsoft is cranking up the R&D and marketing spending to try to compete with Google, but thanks to Google's now 4X revenue advantage (ex TAC), this is a losing battle. Google spent more than $300 million on R&D in the quarter, about half of MSN/Live's total expenses for the period, and it still generated a massive profit. As Google continues to grow, this disparity (or MSN/Live's losses) is only going to become greater.

Well, apparently Microsoft agrees. Today's Wall Street Journal has a front page story saying that executive Joanne Bradford, who brought measurement and advertising skills to Microsoft's advertising sales, will soon head up its MSN online group. But the story articulates the reason why Google has been cleaning Microsoft's clock in online advertising:

Ms. Bradford had run afoul of a Microsoft corporate culture that elevated technology above all else. The bias would soon haunt the company as it struggled to compete with Google Inc., a company that rose to prominence through the power of online advertising. For Microsoft, says company Vice President Yusuf Mehdi, "advertising was a bad word."
For years, Microsoft's culture equated smarts with pure technical brainpower. The company's internal systems, from hiring to strategic planning, were structured around building and licensing software, notably Microsoft's core Windows and Office products, which are still responsible for most of its revenue and profit. Engineering talent gravitated toward those businesses. Most of Microsoft's sales efforts revolved around managing large corporate buyers of software.

So how did Ms. Bradford convince Microsoft technocrats that advertising should matter to them? She used their own language to convince them: she used measurements.

She ordered a survey of the entire sales force, collecting details on how every member spent each day, from routine administrative tasks to meeting with customers. For any given revenue projection, it listed the number of staff needed. For the first time, she was able to put numbers into the art of ad sales. She offered a deal -- provide the people, and she'd guarantee the revenue.

We wish Ms. Bradford much luck with MSN, because she's clearly fighting an uphill battle. Turning technology snobs into marketers is not exactly turning sow's ears into purses, but it is a pretty unnatural act. And while Ms. Bradford has her hands full teaching Advertising 101 to Microsoft, Google's lead with advertisers -- and with Wall Street -- will only get bigger.

Full disclosure: I have no positions in Microsoft or Google. I do own some Apple shares.