Well, it's official. Microsoft is now in the new world of contextual advertising. It's just like the old world of advertising (Microsoft sells billions of dollars of advertising every year, even before today) but it's more efficient.
But, I don't need to hype this new world up. You all know what I'm talking about. Just look at how Google is getting its money. Or read Memeorandum today.
So, why does Microsoft care so much about the world that Google is the leader in? Well, cause the advertising industry is a lot bigger than the software industry. Translation: the MBA's here see a lot more growth potential in advertising-backed software than they do in software that you go to Fry's and buy.
Not that the model of "buy your software here" is dead. Xbox is proving that. I've already spent hundreds of dollars on games, both on Xbox Live arcade and in stores like BestBuy and Fry's.
But, they look at Google, which has operating margins of 34% (with quarterly revenue growth of 79%), and Yahoo, which has operating margins of 18.79% (which has quarterly revenue growth of 33.5%), and they get excited.
Great, so we're in the game now.
Now what? Well, I look at it like we're in the record business and we need to find great bands to build audiences. Then the advertising folks will be able to put ads on those things and we'll all be happy.
So, do we build a great business by copying the "bands" from other companies? (I'll be honest, that's what we've pretty much done so far). To me that just sounds so boring and uninteresting. Imagine you work a music company and your boss tells you to "copy the Beatles."
Yeah, that'll really work.
The next three years will define Microsoft as a company. It'll be interesting to see how our innovation engine roars to life. We've been making some great acquisitions and hiring some great people. And I hear a major engine tuneup is underway thanks to other things that I can't talk about yet.
The trick is, can we find a new way to compete. One that doesn't rely on the old tricks that teams fell back on in the past? Luckily this time around there's piles of money to be had for all three companies — if we create value and find new audiences.
Just because there was Michael Jackson, or Elvis, or the Beatles, doesn't mean that the Black Eyed Peas couldn't come along and make a sizeable business.
Metaphor switch time.
It's real easy in the technology world to follow the path someone else broke through the ice. But that's lazy.
Microsoft needs a few icebreaking ships to forge a new path.
I see a few being built. But we need more.