It’s Going To Happen

I grow increasingly excited about the connected world.  Maybe it’s how easy it is to find a free hot spot (did you know Starbucks will be free shortly, if you register a Starbucks frequent buyer card?).  Maybe it’s Gmail (did you know Centric is moving its corporate email to Gmail?).  Maybe it’s the unbelievable iPhone (did you know I don’t have one, but will have one as soon as they’re available on Verizon?).  Or maybe it’s just how amazing everything is on the web, and how convenient it makes life.As a result of all this, and an up and coming Tivo generation (who don’t watch commercials) Microsoft’s Office cash cow will stop yielding milk.  And overtime, the PC Windows OS will follow the same trajectory.

That’s why Microsoft was willing to buy Yahoo.  Because they know, and believe, that the new model will be get-paid-for-your-software-by-advertising-revenue.  It’s not that Microsoft wants this to happen; rather, they know it’s inevitable.  I believe they’re correct; it’s going to happen.

Consider this, if you were a 20-something, comfortable being always “connected”, would you use or Google’s free office applications and use $350 saved by not buying a Microsoft Office license and buy an iPhone?  Essentially, the choice is if I can use Office for free, I will (as in if the company I work buys it for me).  Otherwise, I’m happy using the free versions of Office-similar products.  I think you’ll see the consumer segment for Office, and ultimately Windows PC OS’ go to zero, and once there’s mass adoption at the consumer level, corporate America will follow.

Currently, Google advertising revenue share is 77% and Microsoft’s is about 5%.  Microsoft is much stronger in display ad (banners).  Display ads are the colorful banner and video ads that run at the top or along side of web pages.  MSFT’s technology precisely targets ads and can assess their value even if not clicked by surfers.  Not only does MS serve the role as media buying company, but its servers also manage all the ad traffic – quite the full service model.  The display ad market is expected to grow quickly as video capability becomes more ubiquitous.  IDC’s prediction, by 2012 display advertising will be $15.1B, search advertising $17.6B.

But in the near term, Microsoft is getting trounced.  But in classic Microsoft fashion, they see the writing on the wall, and are lining up the troops to make their counter move.  Don’t forget how handy it is to have a virtually bottomless checking account (Microsoft ads $1B in cash to their balance sheet each month).

Another prediction.  You will see Microsoft take another run at buying Yahoo.  They must be successful in online advertising, and they know it.

I welcome your comments.
Mike Brannan