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January 6, 2008 10:42 AM

CES: Microsoft hints at possibilities for advertising in video, mobile, gaming

Posted by Benjamin J. Romano

LAS VEGAS -- Microsoft has made clear its intentions to become an advertising company. Today, in a session at the International Consumer Electronics Show, executives in charge of advertising within the company's Entertainment and Devices Division outlined their strategy for giving advertisers a way to reach consumers online outside of the Web browser -- where search and banner advertising currently represents the majority of online ad spending.

Mark Kroese, general manager of marketing and strategy within the Entertainment and Devices Division, said the off-browser focus areas include ads in and around video games, mobile devices and video.

Those three categories represent about 25 percent of online advertising spending, compared to 75 percent for traditional Web-based advertising. And all three categories are growing faster than search advertising, and of course, much faster than traditional advertising venues, which are contracting.

From 2006 to 2007, ad spending on gaming was up 32 percent; video was up 39 percent; and mobile was up 54 percent, Kroese said, quoting figures from the Yankee Group, Parker Associates, and eMarketer. Search was up 17 percent, while advertising spend on major TV networks was down 5.7 percent, newspaper was down 2.8 percent and cable TV was down 1.4 percent and spot radio down 1 percent -- though these traditional media still represent the large majority of total advertising spending.

Microsoft can reach more than 100 million "monetizable users each month" through its offerings in gaming, mobile and video, Kroese said, noting that that's larger than the biggest cable operators.

Some of Microsoft's Entertainment and Devices plans include:

-- In gaming, the company intends to do more of the so-called advergames it has done with advertisers like Burger King and Toyota in 2008. It is also working on sponsored gaming tournaments, including one with the U.S. Army for "Halo 3."

-- A new advertising format currently being tested inside of Windows Media Center, which is included on 80 percent of PCs sold now. One part of Media Center called Internet TV gives users easier access to online video content. Kroese demonstrated an interactive video ad for "Halo 3" that played before a video segment about Pearl Jam. The "Halo 3" ad gave viewers a series of options at the end, including seeing more "Halo" video and buying the game itself or related products.

-- Microsoft is building ad opportunities inside its Zune media player, as well, Kroese said, without elaborating.

-- In mobile, the opportunities for advertising extend beyond shrinking down the banner and search ads on a PC to fit the smaller screen of a phone. These include voice-based services, such as an ad-supported 411 information service. So, instead of paying 75 cents for directory assistance, the service would be free, but the user would have to listen to an advertisement to get the information.

Another scenario involves location-based advertising. A phone equipped with GPS could present its user with a discount coupon for a slice of pizza as the user approached a pizza restaurant around lunchtime.

Digital coupons are another opportunity, Kroese said. Coupons could be targeted to users and stored on their phones, eliminating a problem with paper coupons: People often don't have them in the right place at the right time.

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