Vamos sees ongoing net boom

21Feb08

In larger markets display advertising is slowing, moving closer to
20 per cent than 50 per cent a year, Microsoft Online Services Group
vice-president Steve Vamos told Media in an exclusive interview.

"When these numbers get so big, it’s very hard to add 50 per cent
per year. But I think growth will be strong, in the order of 20per cent
around the world for some time yet," he said.

In the US and Australia, online ads represent only 10 per cent of all advertising, so there is still plenty of room to grow.

Mr Vamos said he thought the growth would eventually settle when the
percentage of online advertising to total advertising was equal to the
share of eyeballs.

"It’s got to relate to media consumption. I reckon you could make a
broad statement that online penetration is around half media
consumption rates, or less in many markets," he said.

"When you have, say, 20 per cent of the ad market to 20 per cent of
time online, then you get growth rates more like the overall ad market.
But in five to 10 years it will be very difficult, apart from the pure
print media, to distinguish interactive from traditional broadcast
media."

Mr Vamos was plucked from running Microsoft Australia 12months ago
to head the software giant’s Seattle-based Online Services Business,
the operator of its US Digital Advertising Solutions group, which sells
ads directly to agencies and clients.

It includes the company’s international online content operations, MSN.

The role caps a career of more than 20 years in the information
technology sector. Mr Vamos was hired to head Microsoft’s Australian
internet joint venture Ninemsn in 1998 and moved across to head
Microsoft’s Australian operations in 2003.

His group will be at the epicentre of any successful move by
Microsoft to make good on its $US44 billion bid last month for rival
Yahoo.

"I am responsible for at least 80per cent of our online revenues," Mr Vamos said.

For the year ended June 30, 2007, Microsoft reported Online Services
revenue of $US2.47 billion, with most of the growth coming from
advertising revenue, which grew from $US314 million, or 21 per cent, to
$US1.84 billion.

The increase was primarily due to growth in advertising for search, home page, email and messaging services.

"There is a tremendous desire by Microsoft to be as successful as we
should be in the online space and as successful as we can be in the
online space," Mr Vamos said.

Microsoft has made repeated stumbles with regards to the internet
since the early 1990s: it took years to build its own web browser and
then its web portal was beaten by AOL and Yahoo; then it was late to
search, beaten by Yahoo and Google. But its sheer size and wealth mean
it has worn most of its rivals down. However, with Google, Microsoft is
faced with a competitor its own size.

"The focus in the past 12 months has been in continuing to engage
audience by adding content to our MSN products such as last year’s new
versions of Mail and Messenger, and we have continued to strengthen our
search offering," Mr Vamos said.

But the company is running a distant third to Google and Yahoo
(itself a distant second) in the internet’s fastest growing business.
The move to gain audience is the basis for the second stage of the
strategy: to attract advertisers.

Last year, Microsoft spent $US6billion, by some way its biggest acquisition, to buy online advertising company aQuantive.

"It’s about really being successful, and on the advertiser side you need to get both right to be successful (in the) long term.

"We
want to continue to strengthen the range of services and content we
have for audiences (and) at the same time make sure the technology
platforms and sales organisations are in place for advertisers.

"If
you look at what Yahoo has, they have a search platform and search
monetisation platform which is called Overture," Mr Vamos said.

"Yahoo
are another platform player in this technology ad platform business.
Whether you are buying a key word or a placement, that is something
that over time can converge.

"Ultimately you have three big
players all … investing significantly, (who have) built scale,
attract publishers and therefore attract advertisers. You have to
invest a lot to build these platforms and the question is how many
players will the market sustain."

Put simply, Microsoft wants
to buy Yahoo to help bulk up its online content and create, next to
Google, the internet’s other main advertising platform.

"In a
sense this is really a technology-based industry: there are tools now
and technology available that allow very advanced tagging of cookies on
site," Mr Vamos said. "We can create an understanding of the relevance
of the ad to the person who is seeing the ad. As you improve the
relevance to the person, you are improving yield and you will get a
higher return."

Microsoft’s efforts so far are underscored by
the fact that MrVamos’s business last year posted an operating loss of
$US732 million, a tenfold increase in a year, which increased because
of the cost of revenue, which grew $US352 million, with increased head
count-related costs as a result of continued search and advertising
platform investments.

Microsoft also missed the social networking wave that exploded with MySpace (owned by News Corporation, of which The Australian’s publisher News Limited is a wholly owned subsidiary) and now Facebook, but MrVamos was sanguine about this aspect.

"Ultimately
the social networking – which is connecting, communicating and sharing
with people of like interest – will become a generic thing of the
internet and we are well-placed to address it if we choose to."

Microsoft
spent $US240million on just 1.6 per cent of Facebook late last year but
Mr Vamos said that deal was all about increasing Microsoft’s
advertising inventory.

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