Thank you for inviting me to talk with all of you today, at the 100th anniversary of the ANA. What a milestone for your organization – you have much to be proud of.
You have joined together 400 companies with 9000 brands that collectively spend $100 billion annually in marketing and advertising. You have been instrumental in developing best practices, and representing the industry’s views on leading public policy issues.
Today is a time when your work is more important than ever. Microsoft is honored to partner with the ANA and so many of its members. We are thrilled to be able to sponsor this event.
I want to begin by talking a bit about the future of online advertising, Microsoft’s efforts in this area, and the importance of promoting healthy competition. I then want to discuss three principles—around transparency, openness, and respect for intellectual property—that are critical to the growth of online advertising, and how Microsoft is working to be an industry leader in putting these principles into practice.
Online Advertising Holds Tremendous Promise
I thought it might be fun to begin by taking a quick look at how ads have evolved over the past century. You can see that that ads have come a long way in the past 100 years. Today, of course, consumers have so many more choices when it comes to products and services, and advertisers have so many more creative platforms from which to sell them.
As we all look forward, we know that online advertising is an ever‐growing part of the future of advertising. The health and competitiveness of the online advertising market is critical to making that future bright. Online advertising is so important because it transforms the way consumers and advertisers find and interact with one another. It provides advertisers with an efficient and less expensive way of reaching the consumers most likely to purchase their products and services. It provides consumers with a far more relevant marketing experience. And we should not forget that online advertising is the monetization engine for much of the content online today.
If you look at recent data, you get a sense of the tremendous potential for innovation and growth in online advertising:
This lag between media consumption and ad spending might seem surprising at first, but it’s actually fairly common. When television overtook radio in the early 1950s, it took advertising spending a few years to catch up. The rate of adoption of new technologies has continued to accelerate, so we can expect that the shift in ad spending will come soon.
If we are talking about the future, we must talk about mobile advertising. It is just beginning to explode from “potential” to “performance.” People – especially younger people – are starting to use their phone like they use their PC. Here too, the data are pretty compelling:
For this market, the ability to serve up information from a rich and diverse set of data ‐ including ads ‐ about location, shopping, restaurants and other commerce will be critical. As the mobile advertising market takes off, it is in everyone’s interest to ensure that the market remains healthy. We welcome the FTC’s decision to look closely at recently proposed transactions in mobile advertising markets to ensure that competition and choice are preserved.
As for Microsoft, we’ll also be part of the mobile ecosystem. We hope that you’ll agree that our upcoming Windows Phone 7 Series includes several leapfrogging innovations for consumers and advertisers. We also are thrilled that Apple recently certified the Bing search app for the iPhone, and that Motorola will be adding Bing “local search” and mapping services to its smart phones, launching in China.
We at Microsoft believe in and are excited about the ever‐growing potential of online advertising. We are committed to being a great partner and service provider to you, not to mention being a committed advertiser ourselves.
Microsoft has invested heavily in online services for over a decade, and in search specifically for the past six years. We recently launched Bing, our search “decision engine”, which showcases some of the results of our investments and innovations.
Since we launched Bing last June, we have won over some tough critics. Data last week from ComScore revealed that Bing now has search query share of 11.5%, and I know that you in the advertising business will appreciate it when I say that “we are up 50% since June!”
This slide shows the rich search results page that Bing delivers. Note the “results” content, often giving you direct telephone contacts to web site publishers, and “search within the site” on the same page.
Document preview – when you hover to the right of a result – gives you a snapshot of information from many web sites, so that you have a better sense of whether the result matches your query.
We know we still have a long way to go. But I want to be a clear: we are “all in” when it comes to search. For the long term, we are prepared to make the investments needed to enable success, and to help make all of you successful in your online ad campaigns.
In addition to R&D, we also know that we need to experiment with business model innovations in order to compete. We’re constantly looking for new ways to add business value. For instance, our CashBack program pays cash to any consumer who makes a purchase through Bing from a participating vendor. CashBack covers more than 10 million product offers from more than 700 retailers, including Wal‐Mart, Best Buy, and eBay.
CashBack is just one example of our commitment to developing new features and business models that we hope will help make our advertising partners more successful and attractive to consumers.
The Importance of Scale
As we know, it takes more than engineering and business model innovation to succeed in online services. “Scale” is absolutely critical in order to compete in search advertising and, increasingly, in online advertising more broadly.
Take search advertising. Consumers value search engines that return relevant results—including relevant ads. As a practical matter, they are also are more likely to click on results and ads that better match their queries. Improving relevancy, however, is a major engineering challenge that requires constant experimentation on huge amounts of search queries. This means that smaller search engines with fewer queries generally cannot improve relevancy as quickly as larger rivals. This is especially true for less common, “tail” queries.
In other words, in order to be competitive, search engines need more than just smart engineers and really fast computers. They need to conduct more experiments with increasing amounts of data received by the engine itself. How do you get more data? Through more users. More users means more search queries, which means more experiments, which means better results, which means more users and more advertisers, who bring more ads to the table. And so the cycle goes.
Scale, of course, is also extremely important to you, the advertiser. Being able to reach more users and show more ads through a single platform lowers your total costs. And because platforms with more users are better able to match your ads to your audience, you get more opportunities to optimize and monetize your ads.
We at Microsoft are making big investments in improving our scale – first and foremost, of course, by our ten year global partnership with Yahoo!. The DoJ and the European Commission recently approved the deal, and we are now working night and day to implement it as quickly as possible. We are extremely grateful to the ANA for supporting our deal, and to all of you who supported the deal in your individual capacity.
Once we’ve implemented the deal with Yahoo!, starting first in the U.S., we’ll serve about 25‐30% of the search market. That means nearly a three‐fold increase in the customers you can reach, on a single platform. And that means that we will have started down the path to having a search engine with enough data to have a credible level of scale, in order to compete by bringing more relevant natural and paid search results to consumers.
Improved competition, of course, is also a key benefit of our Yahoo! deal. Today, as all of you know, Google controls 70+ percent of the search queries and an even greater share of search advertising revenues. Our Yahoo! deal means more choices in online advertising, and more incentives for all ad networks to innovate and provide good customer service. It will help us all realize the full potential of online advertising.
Realizing the Full Potential of Online Advertising: Transparency, Openness and Respect for IP
I’ve talked about two things that online advertising needs to promote robust competition – namely, innovation and scale. In addition, for online advertising to thrive, it must be trusted. That’s why it’s also essential that the industry comes together around some fundamental principles that help engender trust—principles like transparency, openness, and respect for intellectual property.
I know the ANA understands this, because you consistently lead the industry in developing principles – such as those related to advertising to children – and best practices to promote competition and consumer confidence in advertising.
That’s one of the reasons Microsoft values so highly our relationship with the ANA. Like you, we are committed to leading the industry in being responsible actors. We are also committed to providing you, our partners, with an efficient and frictionless advertising experience. I’d like to share with you some of the steps Microsoft is taking in this area.
Let’s talk first about transparency. For advertisers, transparency really boils down to knowing what you are getting for your money. It’s about value, about being confident that you are getting what you pay for.
Two things that often make advertisers question whether they are getting their money’s worth from online advertising are click fraud and malicious ads—also known as malvertising. Let’s be clear: people who engage in click fraud and malvertising are criminals—they represent the seedy underworld of online advertising. I want to spend a bit of time talking about both problems, and about what Microsoft is doing to tackle them.
Malvertisements are online ads that are designed to look like regular ads, but that use a variety of tricks to deceive and harm consumers. Malvertisements are used to do all kinds of rude things – distribute viruses and other malicious software, redirect users to deceptive websites, frighten users into buying rogue security software, or “scareware,” and so on.
Malvertising doesn’t just hurt consumers, it hurts everyone. Malvertising makes consumers nervous about clicking on any ads, even ads that seem legitimate. That, of course, is terrible for advertisers. It’s also bad for ad networks, since their systems are often mis‐used to deliver these trickster ads.
When Microsoft noticed its own network being abused, it moved immediately to terminate these malvertisers from its networks. But we didn’t stop there. We decided to establish an industry first.
Last September, we filed five lawsuits against some of the worst malvertisers. To the best of our knowledge, these are the first private lawsuits directly targeted at malvertisers. Our goal with these lawsuits is not just to get them off our network, but to put them out of business permanently so that they can’t set up shop somewhere else.
We know that these five cases alone will not eradicate malvertising. But we are committed to promoting the integrity of the online advertising ecosystem and helping create a safer, more trusted online experience for consumers and advertisers.
We hope other leading ad networks will follow our lead. If we as an industry are unified, we can send a clear message to consumers and the entire online ecosystem that malvertising will not be tolerated.
Another big frustration for advertisers is click fraud. In simple terms, click fraud refers to sham clicks made by a software program, or even a person, to drive up an advertiser’s pay‐per‐click fees. These clicks never result in a sale.
This hurts advertisers. It also hurts ad networks and publishers, because it leads advertisers to scale back spending. And ultimately, anything that hurts the online advertising market hurts consumers, because so much of the content on the Internet depends on the integrity of the online ad market.
Here again, we have taken aggressive steps to combat click‐fraud and to identify and prosecute clickfraudsters. Last June, after an intensive investigation, we brought a high‐profile lawsuit against some click fraudsters that were harming our advertisers for auto insurance and for the hugely popular online game, World of Warcraft.
As with our cases against malvertisers, we know how difficult it will be to find these bad actors and put them out of business. But we are convinced that it’s the right thing to do. We want you to know that that we do not tolerate click fraud on our network.
Making sure advertisers get what they pay for is just one way that Microsoft is working to provide greater transparency—and in that way more value—to our advertising partners.
Like transparency, openness is another principle that the entire advertiser community should support. I want to focus on one aspect of openness that is particularly important for advertisers—namely, the ability to port your data freely and openly between online ad platforms and to or efficiently managing campaigns across these platforms.
Microsoft and others believe in that principle. There is one big exception. Google does not. Specifically, the Terms of Service for the APIs for Google’s AdWords network prevent the use of any third‐party tool that copies data from a non‐AdWords account into an AdWords account or from an AdWords account into a non‐Adwords account.
These restrictions apply to your use of your own data, not your use of Google’s data. In essence, Google requires that you tie your hands on using your own data on other platforms, if you want efficient access to their network.
These and other similar sorts of restrictions raise your costs, they reduce competition, and they prevent anyone but Google from giving you, the advertisers, the scale and choices you want and need.
We realize that, given the state of the market, few of you can afford to give up using Google because of these restrictions. But that doesn’t mean you should have to accept them either. And the fact that Google has the might does not make it right.
Artificial barriers to open use of data in cross‐platform ad campaign management have no place in the market. Professor Edelman’s Advertiser Bill of Rights affirms “an advertiser’s right to use its data as it sees fit.” We agree. Today Microsoft is announcing its full support for that principle. We call on other online ad platforms to endorse it as well, and we urge you, as the world’s leading advertisers, to insist on it from ad platforms.
Respect for IP
Finally, I’d like to talk about a third key principle, respect for intellectual property. There are many things we could talk about, but I want to focus on brands and their role in online advertising.
Microsoft starts from a pretty basic principle: your brand is your brand. That’s why we, like Yahoo!, prohibit the sale of competitors’ brands as keywords in search advertising. Setting aside for this discussion the legal debate about trademark rights, we think it’s the right thing to do.
Not all ad platforms share our views. Today, Google refuses to investigate any complaint about the sale of a trademark as a keyword. Google has refused to budge on this even though many brand owners— including probably many people in this room—have complained.
The practical result of Google’s policy is that you, as brand owners, are forced to pay inflated prices for your own brands as keywords on Google. What’s more, your competitor can use your own brand against you by triggering ads for competing products and services.
Google, of course, benefits handsomely from this policy, by collecting lots of money from the investments that you and other companies have made in your brands. We don’t think they should. If a user types a brand name as a search query, it stands to reason that the user is searching for that particular brand. And the reason the user is searching for that brand is probably due to the money and effort the brand owner has invested in promoting that brand.
We don’t think the largest ad network should unilaterally impose such a brand‐unfriendly approach on advertisers, simply because it has the market muscle to do so.
We think a better approach is for ad networks and advertisers to come together, sit down, and hammer out some balanced rules in this area—rules that everyone supports and follows.
A good model for this process is how the industry came together to deal with the problem of infringing content on sites that hosted user‐generated content. Microsoft sat down with several leading content companies and UGC site owners to hammer out a pragmatic solution, one that balanced respect for IP with the need to preserve incentives for innovation and opportunities for online expression. Today, many of the world’s leading content creators and UGC companies—including CBS, Daily Motion, Disney, Fox, MySpace, NBC, Sony Pictures, Veoh, and Viacom—have signed onto the UGC Principles.
Let me conclude by affirming Microsoft’s belief in, and excitement for, the potential of online advertising. We are “making it real” by taking steps like our strategic deal with Yahoo! to get scale, investing heavily in “user intent” innovations to help consumers make decisions using search and advertising offerings, and partnering with the advertising ecosystem. Let me show you a short ad of our own, which gives a nod to media from the past, with the very modern Bing “decision” engine.
In addition to promoting healthy competition, it is vital that the online advertising community stands behind the principles of trust like transparency, openness, and respect for intellectual property. Microsoft is working hard to put these principles into practice, and we urge all of you in this room to support these principles across the industry. If we do, I believe the future will be bright indeed.
Thanks to you at the ANA for partnering with Microsoft on this conference, and for the opportunity to share these ideas with you today. We look forward to working together with the ANA and with each one of you in making the exciting potential on online advertising a reality.