Peter Kafka

Recent Posts by Peter Kafka

Microsoft Takes Another Stab at Selling Its Own Ads–By Getting Someone Else to Do It

It’s about time! Or, more accurately, “real time”: It’s taken Microsoft several years to get its head around the idea, but the company is finally going to start selling its ad space via a “real-time bidding” exchange, just as Google does.

The difference: Instead of running the exchange itself, as Google does, Redmond is going to outsource the work.

In February, ad tech start-up AppNexus will begin selling Microsoft’s “non-premium” display ads via its own exchange. And Microsoft will essentially pull the plug on AdECN, the exchange it bought in 2007 but only began testing a year ago.

If you’re not remotely interested in advertising technology, here’s the takeaway: Lots of smart people predict that display advertising will be moving to “real time bidding,” which allows buyers and sellers to set the price of a single ad impression in milliseconds.

That efficiency makes plenty of sense from a buyer’s perspective, but it will inevitably chip away at publishers’ pricing power–which is one reason big sellers like Microsoft haven’t embraced it yet.

Microsoft sort of announced the move last October, when it participated in a $50 million investment in AppNexus. Microsoft and AppNexus have been deliberately playing down the move, for reasons I can’t quite fathom–it’s not as if players like Google haven’t picked up on it.

(And that Microsoft-AppNexus connection may or may not have had something to do with a falling-out between AppNexus and Google last year.)

In any case, it’s now formalized: Microsoft will throw all of its unsold inventory into an exchange that AppNexus will power, starting with ad space on Windows Live Hotmail. Then it will add in all of the inventory on MSN properties, and eventually ads from third-party publishers that Microsoft is working with, like Viacom.

Which doesn’t mean Google will be quaking in its boots.

At the start, AppNexus figures it will be moving more than 10 billion ad impressions a month through the exchange, which sounds like a lot. And it is! But Google’s AdX is many times larger–it’s a safe bet that it’s doing more than one billion impressions a day, and likely much more.

Still, Google’s giant lead isn’t necessarily insurmountable. For starters, the universe of display advertising is much more fragmented than search. So no matter how much inventory AdX picks up, there’s always going to be lots of ad space that Google doesn’t get its hands on.

And because Google’s so big, there’s a very deliberate effort by lots of buyers and sellers to make sure they have other options. So underdog Microsoft–I can’t get over how odd it is to type that–will get at least a look-see for quite some time.

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I think the NSA has a job to do and we need the NSA. But as (physicist) Robert Oppenheimer said, “When you see something that is technically sweet, you go ahead and do it and argue about what to do about it only after you’ve had your technical success. That is the way it was with the atomic bomb.”

— Phil Zimmerman, PGP inventor and Silent Circle co-founder, in an interview with Om Malik