The money, part of the surprise spending package that recently gave Microsoft’s share price its biggest single-day drop in five years, comes as the company struggles to catch up to Yahoo Inc and Google Inc in the search and online advertising market.
Ballmer and MSN chief Yusuf Mehdi introduced adCenter, Microsoft’s answer to Google AdWords and Yahoo’s Publisher Network, gave some hints at what features are coming up in the near future, and promised to put its money where its mouth is.
Our R&D spend just in our online MSN area has gone from a $500 million in our fiscal year ’05, to a projected $1.1 billion in our fiscal year ’07, Ballmer said. We will invest as much in this online opportunity in R&D as any of the other big players in the market.
Last year, Yahoo invested about $547m in product development and Google invested a more modest $484m in R&D, according to those companies’ financial reports.
Microsoft’s total investment in R&D, across all its business units, in the company’s fiscal 2007, will be $6.2bn, Ballmer said. Unlike Yahoo and Google, Microsoft has obvious cross-pollination advantages due to the breadth of its product catalog.
We have told our R&D folks that our number one priority, number one priority is software as a service, Ballmer said. adCenter is one such service.
Mehdi demonstrated the features of the service, currently restricted to search-based advertising, and previewed context-based advertising features that will compete with AdSense and YPN. He said it will differentiate itself in two key ways.
One is again harnessing the power of audience intelligence to get better ROI for advertisers, he said, the second is to really do a better job to give you more complete control over the two separate marketplaces, because, as you know, search and contextual work in different ways.
He said the context advertising function, in which ads are matched to the publisher-generated content rather than the user-input search query, will have a greater ability to target ads at specific user demographics. A pilot of the feature is due this summer.
Microsoft is talking up the ecosystem approach too. Free APIs will be available for companies to build adCenter into their own ad management campaigns.
He’s talking Google’s language here. With AdSense, AdWords, and the myriad extensible services and APIs Google has exposed, a big portion of the web is programmatically plugging into Google in some fashion.
And that’s Microsoft’s traditional stomping ground. Ballmer even mimicked his own insane Developers! Developers! Developers! rants, saying its now developers, developers, developers, advertisers, advertisers, advertisers.
This is really a platform play, he said. We need an ecosystem, as we call it, around our Live platform, just as we needed an ecosystem around Windows… the only way we will be able to get to critical mass is by literally reaching out.
