• by Frank S. Foster , June 20, 2008

Hmmm. What are the ramifications of Microsoft buying Navic? That was the theme of the stream of emails that followed on the heels of the SMS news feed. I think the move is an intriguing one for Microsoft.

While Microsoft's interest in growing its share of the Internet advertising revenue is well known, its foray into television was a surprise to many. But it shouldn't be. We've seen this before, from the failed electronic guide test with Comcast in Seattle (Microsoft TV Foundation Edition was replaced with GuideWorks technology in 2007) to the IPTV-based technologies rolled out by companies, such as AT&T, to the not-so-subtle challenge to the pay television industry with the 20 million Xbox 360 consoles and the Xbox LIVE service. And television represents a very large piece of the advertising pie. Microsoft wants its share.

So why Navic?

Navic has an interesting business with a presence in 35 million set-top boxes nationwide and strong relationships with the largest cable entities. Perhaps best-known for their set-top box monitoring and diagnostics service, Navic has spent a great deal of time and energy attempting to navigate the advanced television advertising landscape. Navic provides targeted TV advertising with a nascent ad network called Admira.

With it, advertisers can run ad campaigns targeted to viewer groups, with interactive features, like the ability to click during the commercial to view long-form content. Navic's solutions have had extensive trials, and they give Microsoft some credible tools to offer the cable industry. As someone who has worked directly with cable operators and advertisers that have deployed or funded Navic's services, I think by and large Navic's technology works.

There are many in the media industry who assume that the operators will not work with Microsoft. But the truth is the cable guys have never shied away from Microsoft and would probably embrace them on the advertising front. Even on the technology side, were they sufficiently motivated to move away from RF and onto an IP platform, Microsoft would win more than a few converts. The U-verse platform from AT&T is an example of what Microsoft can do. It is very compelling.

If we look for a moment at Hulu and the broadcast and cable network sites, it is clear that the line between television and the Internet is no longer the Grand Canyon. With television content being made available online and more original content being created for the internet, that divide will continue to shrink. There are many, myself included, who would say that traditional television advertising looks like a business that time and technology have left behind.

Tracking television audiences with Nielsen's data has changed little in the last 40 years. Nielsen surveys a sample of TV viewers to roughly estimate audience sizes, but their research offers few of the bells and whistles that online advertisers are accustomed to. Engagement metrics, interactive advertising click-throughs, DVR and on-demand viewing--these are all issues Microsoft and Navic can address that Nielsen has refused to tackle.

I would expect Microsoft to sign long-term deployment agreements with the cable operators to implement Admira and the accompanying advertising technologies for a very reasonable cost. Microsoft must get scale in television and to do so, they will subsidize the addressable/interactive advertising technology if they have to just as Murdoch did at BSkyB. Once they achieve scale, they will have something. Until then, it isn't very interesting.

Microsoft has not articulated how a new focus on television advertising will fit with its larger Internet strategy, but I would surmise that they have decided to punt in the battle against Google in the text-based advertising business. Traditional television with its messy broadcast model and RF network-based cable services was never designed for advanced advertising.

IP based networks will replace them one day soon, and Cisco and Microsoft will be waiting. In the meantime, Microsoft has stepped into the war involving next-generation video advertising, and Navic is their first play from scrimmage. And no, television will never be the same.