Microsoft's Mehdi Downplays Likelihood Of Yahoo Deal

by Laurie Petersen, May 24, 2007, 6:00 AM

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Microsoft has most of the pieces it needs to fulfill its advertising ambitions with the $6 billion aQuantive acquisition, and remains "very committed" to its year-old adCenter platform, which now has 80,000 advertisers, a senior Microsoft ad executive told the Goldman Sachs Internet Conference yesterday.

The Webcast remarks by Yusuf Mehdi, Microsoft's senior vice president and chief advertising strategist, seemed to downplay any idea that Microsoft is looking for immediate scale through an acquisition of Yahoo.

At best, Mehdi said, Microsoft may fill in "some other small pieces, organically or otherwise," when directly questioned by Goldman Sachs Internet analyst Anthony Noto.

"We think we have the largest audience to monetize," Mehdi said, when looking across the entire Microsoft suite of products--from Office to Xbox. "I don't think it's the end of inning one."

With the aQuantive purchase, Mehdi said, Microsoft is poised to become a leader in what he called discretionary advertising--matching an ad buyer with an audience rather than specific pages.

To beat Google and basic consumer inertia, you have to do something big, bold and different, Mehdi said, suggesting there is plenty of room for improving the effectiveness of the search experience. (Microsoft search share dropped to 9% in April, from 10.1% in March.)

"When we ask who is the highest ROI search engine for you," Mehdi said, "clients say the return on dollars spent with [MSN] are the highest, but you need to get more volume."

The statistic to examine, Mehdi said, is not how quickly it produces 500,000 links, but that it takes 11 minutes on average to get an answer to questions such as what are the 10 companies that pay more than $2 in dividend, or where is the nearest restaurant in the neighborhood with a reservation available tonight.

"Just a 10% improvement answering people's questions and you change the game on search," Mehdi said. "This is the opportunity. We are 100% committed to next-generation search experiences. We're in catch-up mode, but we've closed the gap on relevancy. In blind taste tests we're indistinguishable from the competition."

Referring to the summit Microsoft hosted for the top 1,000 advertisers earlier this month, Mehdi said many companies that are just now coming online are willing to pony up $500,000 to $1 million for an MSN homepage roadblock.

A day-long Hotmail roadblock taking over all available display inventory, he says, has increased unaided awareness for advertisers by 10 to 20 points. The $20-$30 CPM is still increasing for display advertising on MSN's most popular destinations--the home page, MSN Video, Home and Auto.

Once the aQuantive deal closes (expected sometime after July), MSN will accelerate the inventory it puts through aQuantive's DRIVEpm ad network, Mehdi said.

"The ad market has converged," Mehdi said. "Anyone who thinks it's just online search is missing that. It's all just inventory."

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