How Microsoft Almost Won Digital Advertising

eric-picard-sell-siderThe Sell Sider” is a column written by the sell side of the digital media community.

Today’s column is written by Eric Picard, vice president of strategic partnerships at MediaMath.

The announcement last week that Microsoft is effectively selling off its display advertising business to AOL made me a bit nostalgic. I was recruited by Microsoft as it geared up for a major foray into the advertising space.

Although I only worked there from 2004 to 2010, I think my perspective on the company’s evolution and decision to leave the display advertising business holds some value.

When I joined Microsoft, there were 20 people on the product planning team responsible for advertising technology products. The engineering team for ads was about 400. By the time I left in late 2010, the business team had grown to more than 300, and the engineering team had more than 1,500 heads. And that doesn’t include the sales and marketing organizations.

While I was at the company, we acquired seven ad tech companies, reviewed hundreds and engaged on about a dozen. We invented whole swaths of technology that the market, in general, isn’t aware of. We drove massive innovation and investment in the space. We could have won it all.

Moving To Microsoft

I had started one of the early ad tech companies – Bluestreak – in 1997. We had raised a large war chest of venture funding – and acquired several companies after the dot-com bubble burst in 2001. In late 2004 I was recruited to Microsoft by Mike Hurt and Joe Doran.

During my interview, Joe disclosed that Microsoft had come to the realization that digital advertising was critical to its future. He showed me printed slides showcasing Google’s revenue growth, funded completely by ads. Google would soon make more money than Microsoft from each copy of Windows.

In no small part, this revelation drove the decision to fund Microsoft’s search product, especially the advertising engine behind it, referred to as Project Moonshot at the time, later to be called adCenter. AdCenter was about a year from launch, the center of innovation and scale for the company. Microsoft’s broad analysis showed that digital advertising was critical to the ongoing funding of software, which was increasingly being bonded to the Internet. Joe needed someone who understood the ecosystem and could help drive the future strategy of the company. He laid out an enticing opportunity: I could help drive the investments that Microsoft would make across the ad technology landscape.

Joe described a scenario where digital advertising was potentially a core monetization mechanism for Microsoft software products that would either serve as their primary revenue source, enhance revenue, or offset lost revenue from piracy.

Over the course of the next few years I met an extremely impressive cast of characters.* They ranged from the core business team under Joe to some of the most brilliant engineers I’ve met and executives from whom I learned an immense amount about business and technology.

Microsoft’s Not-So-Secret Weapon: Engineers

When I talk to people about the value of world-class engineers, they often fundamentally misunderstand what I’m talking about – because they’ve never worked with world-class engineers.

There’s a whole set of assumptions that are wrong, such as the belief that engineers build what business people ask them to build. Or that engineers are socially goofy and can’t understand business issues. That engineers would never get anywhere without business people who translate the market to them.

The engineers who I worked with at Microsoft – especially at senior levels – were in many cases geniuses. While there was the occasional social stumble, this was less common than you’d expect. And any of the senior engineering leaders could easily transition to CEO or non-engineering leadership roles at most companies – and many have.

In the first few weeks at Microsoft, I met a handful of engineers with whom I’d form long and fruitful relationships. Tarek Najm was the engineering leader who started the adCenter team. He’s one of the most brilliant people I’ve met – extremely inventive, high-energy and curious. Tarek took the lead in trying to catch Google’s AdWords product. With a relatively small team, he built a superior monetization engine from scratch.

One of Tarek’s lieutenants on adCenter was a program manager named Brian Burdick, who became one of the great unsung heroes of the advertising technology space. Brian is the one who ultimately invented RTB.

Tarek’s lead engineer for display advertising was a wiry man named Phani Vaddadi – who brought with him his two lieutenants, Alam Ali and Brian Tschumper. These three guys formed a back-room brainstorming group with me. Among other things, the four of us came up with some ideas around ad-funded software that we incubated and brought to market, which ultimately became the mechanism by which ads were delivered into Xbox.

There were also numerous trials in a variety of devices and applications, from the ill-fated Zune to trials of ad-funded Office and Windows in various markets across the world where piracy was an epidemic.

During my first year, we launched new brands, including Windows Live – if you can remember that one – and innovated on advertising formats. I crafted a set of principles regarding when and what kind of advertising was appropriate for which content experiences. It was based on the idea that modality of the user experience should drive whether we showed ads at all, such as when a Hotmail user is composing an email, or whether the ad could be disruptive, such as covering the page where a user is reading an email.

2005-2006: The Plan And Beginnings Of Execution

In addition to being responsible for overall ad technology strategy, I led a group focused on “emerging media.” This included mobile, OTT and addressable TV, video game advertising, device-based advertising, ad-funded software and a category known as “other.” Working with Joe, his direct reports and some of their direct reports, we crafted a comprehensive vision and plan for winning the ad technology space.

The strategy that evolved was pretty comprehensive and clear: build, buy or partner analysis on all opportunities in the space. Where we had existing investment in heads and technology, we’d increase our investment in alignment to revenue opportunity. We would acquire other companies in the space that owned strategically valuable components and held significant market share. We’d partner when there were assets that were not strategically important to own – but were needed for our customers or to operate our business.

The overarching vision was to be the platform of record for buyers and sellers, and use the scale of our technology investments to drive prices down while claiming a small percentage of all transactions. Our vision was that we’d automate buying and selling, and build direct connections between buyers and inventory owners wherever possible.

In 2005, Joe asked me to pick up all the M&A coordination work. Over the next few years, we reviewed hundreds of deals and pursued about a dozen.

Video

I engaged on a massive video and television advertising project that went through various iterations for nearly three years. Steve Ballmer had asked Joe to rationalize all the video advertising projects across the company and ensure that we had one cohesive strategy. Within three weeks I found six major initiatives across three divisions of the company that all were trying to build a comprehensive video or television advertising product suite as a standalone. It took several quarters, but eventually we rationalized all these projects and packaged them up.

I suggested that we should either partner or create a joint venture with broadcasters, networks and studios to offer a digital version of their content over the web. It would be integrated into all of Microsoft’s consumer-facing video consumption assets, including Xbox, Windows MediaCenter, Microsoft TV, Windows MediaCenter and MSN Video. This was before YouTube, while Netflix was still mailing DVDs. Our various business discussions with broadcasters may well have been the kernel of the idea for Hulu.

We had significant investment across numerous divisions and technologies – and we supported video advertising for one of the largest digital video providers, MSN Video. We invested in software to run video ads in any Microsoft product or device.

In-Game

On the video game front, Kevin Browne reached out to us while investigating the emerging area of “in-game” advertising. He said that some new companies were driving significant revenue to game studios by dynamically inserting ads into the video game, usually in a billboard-like model.

He suggested that the Xbox division wanted the capability to support in-game advertising but it wanted the overall monetization and advertising sales to be centralized outside of its team. Joe and I had agreed upon a strategic framework for technology investment such that if any player in an emerging market had gained significant market share that seemed sustainable, we should consider them for acquisition.

Massive fit that bill exactly: It had about 80% market share and was growing. While there were other companies in the space, Massive was the standout – nearly defining the category. It became the first of several acquisitions I was involved with for the company. It also taught me for the first time exactly how hard it was to get acquisitions at Microsoft to work post acquisition.

Mobile

Microsoft has obviously lost many opportunities in mobile, not least of which is in mobile advertising. But in the days before the iPhone, when the smartphone market was made up of Blackberry, Microsoft and “other,” Windows Mobile had a chance to be big.

And we saw mobile as a big part of our strategic footprint. We invested in core assets in the mobile space. To bolster our European footprint, we acquired ScreenTonic in France.

Nobody imagined Facebook back then. Nobody imagined that Apple would build a smartphone. And Google was a threat we all feared. In 2005, Google acquired Android – but nobody got it.

Programmatic

In 2005, I first heard about a paper written by Brian Burdick, with help from others on the adCenter team. He proposed something called an Open Listings Exchange (OLX) to mirror the financial markets when ad exchanges went digital. His paper was a revelation. I believe it was the first time anyone proposed the concepts we now know of as real-time bidding (RTB) to the market.

In my purview of emerging media was that category called “other.” It was in this “other” category where the OLX lived. Today, we call it “programmatic.”

The adCenter team proposed building a broad overarching platform that was open and available for all parties in the space to develop against and plug supply and demand into. When we pitched this to Bill Gates and asked for 1,000 engineers to run after this opportunity, he balked.

This led ultimately to our acquisition of AdECN, which had an early ad exchange that didn’t quite meet the technical need we envisioned for OLX. But that wasn’t until 2007.

Search

Also in 2005, Microsoft brought in David Jakubowski to build a new product marketing team for adCenter to effectively bring adCenter and paid search ads for our search engine to market. David hired a stellar team of leaders that included Brian Boland, James Colborn, Jennifer Kattula and many others. With great product managers like Jed Nahum, Erynn Petersen and Saleel Sathe on Joe Doran’s team, along with others working with David’s team, adCenter and related products and technologies went live.

What Went Wrong

Over the next few years, we significantly grew our investment in advertising technology, with much of the investment going toward our defined build, buy or partner strategy. We acquired DeepMetrix as a web analytics provider, Massive for in-game advertising, Screen Tonic for mobile advertising and AdECN as an advertising exchange.

All of these acquisitions were done with the expectation that we would bite off a big chunk of a market and grow – but as I learned, Microsoft had a hard time ingesting acquisitions at the time. There are many reasons why. Suffice it to say that DeepMetrix, ScreenTonic and Massive didn’t provide the catalysts we’d hoped for to jumpstart these marketplaces. Of all of them, only the AdECN acquisition seemed to have real promise because Brian Burdick took over engineering as CTO and ran after RTB.

2007: aQuantive

Numerous times in our strategic analysis of the space, our team recommended running after DoubleClick. Ultimately, our executive chain was unwilling to consider such a large acquisition in the 2005-2006 timeframe, so we went after other opportunities.

By late 2006, we had been pushing our vision externally to target opportunities with video and even OLX. We’d met with every large media company and every large company in the TV and video content space. Mostly these strategic discussions were driven by Yusuf Mehdi, Joe Doran, me, folks in the corporate strategy group and Tarek Najm.

In 2007 Yusuf, who had been the CVP who managed search, MSN and advertising, was promoted to the title of SVP and chief advertising strategist. This signaled internally and externally that Microsoft was very serious about investing in digital advertising. Since my team owned ad tech strategy, I was asked to dotted-line report to Yusuf as we started considering big strategic opportunities.

By 2007, with Yusuf’s promotion, we started reviewing much larger and more strategic deals and investments. We recirculated across the video content space and held numerous meetings about our OLX vision and the desire to invest in an alternative to Google, which resonated with strategic partners. Executives from agency holding companies and media companies frequently expressed extreme interest in Microsoft developing as the alternative to Google in paid search and across all digital media.

We began to get very serious about a few big acquisitions that we’d developed an appetite for. One was DoubleClick – the other was Donovan Data Systems.

DoubleClick was the only company that met our strategic framework on the ad platform side. It had a huge position – approximately 65% on publishers and about 45% on agency desktops with DoubleClick for Publishers (DFP) and DoubleClick for Advertisers (DFA). Importantly, we started hearing about a new large project internally called the DoubleClick Exchange.

We investigated and ultimately passed on acquiring Right Media at the end of 2006. We were now fervent in our belief in the OLX vision, which had matured over two years. OLX could be catalyzed by combining the supply from DFP with the demand from DFA, with Microsoft inventory as an anchor tenant. We’d have the opportunity to really take off.

We saw Donovan Data Systems as a perfect fit in our strategy. It had a huge percentage of agency media buyers using its systems, and was a big Microsoft customer.

Unfortunately as we neared a swing at DoubleClick, which would have been the centerpiece of our strategy, it ran a quick process and stepped into exclusivity with Google. We tried unsuccessfully to break them out of that exclusivity and were prepared to throw a ton of money at it – but Google prevailed.

The alternative approach that Yusuf, corporate strategy, Joe and I came up with was less than optimal. We’d basically acquire and roll up several major assets. We bought AdECN to create a center of gravity around our OLX vision. We continued discussions with Donovan Data Systems and got very close to a deal.

And we began conversations with aQuantive.

Since aQuantive was based in Seattle, it was easy for our executive team, who hadn’t been deeply ingrained in the strategic view so far, to step in and participate directly in conversations. And things accelerated quickly – so fast that negotiations moved beyond the pale of expectations – with the valuation of aQuantive eclipsing the next most expensive acquisition at Microsoft by a wide margin.

Ultimately, Microsoft decided that aQuantive was the big bet we would make in the space. The strategy was to leverage the buy-side footprint of Atlas, which was similar to DoubleClick’s 45% market share, and attach it to the AdECN exchange to form the basis of OLX. While I continued to push hard for Donovan Data Systems to augment that Atlas footprint, the decision was made to focus on aQuantive and build out an automated optimization engine that would connect Atlas with AdECN, providing automated bidding capabilities. Microsoft’s ad network inventory would anchor the exchange, including owned and operated remnant inventory with a small amount of premium inventory. And we would create synergy with our existing adCenter customers.

Things didn’t proceed as planned. It took a long time to get the new aQuantive team up to speed on our OLX vision, and they were skeptical. The aQuantive leadership team became the business leadership team of the new advertising organization that swelled to 1,500 engineers and 300 business people The aQuantive executive team never embraced our OLX-enabled advertising platform business strategy – they felt that the astronomical price we paid for the company validated their previous strategic direction. They felt strongly that we needed to incrementally grow revenue from our base, which is how they’d grown their company. What they missed was that their existing revenue had very little impact on the strategic imperatives that Microsoft cared about. We needed to move the needle by billions of dollars, not millions.

The plan had been for Yusuf to lead the new division, with his core leadership team making up the leadership ranks. During the final stages of the aQuantive negotiations, a new path was forged with Brian McAndrews and his team stepping into the lead. I really liked those guys – and had been friends with many of them for years ahead of the acquisition. But ingesting and digesting that acquisition was really hard for both companies. And adECN died on the vine of that ingestion. We weren’t allowed to start testing live inventory through the exchange because an executive wouldn’t sign off on the revenue risk.

Ultimately we lost our opportunity. Prior to that acquisition, we refuted the idea that Microsoft couldn’t be agile and responsive to the market. After the acquisition, we crawled into our cave to digest a big meal – like a dragon. By the time we emerged from our cave, the world had evolved past us.

We ran instead after a giant partnership with Yahoo on search. We reduced our investment in display and other forms of advertising. That defocus culminated finally in the exit we saw last week from everything but search and paid search.

But there was a time when Microsoft almost won. We were duking it out with Google and focused on a major win, not just participating. We led the market. Many of those in this story went on to huge careers in advertising – with several now at Facebook.

We almost had it.

* While posting a comprehensive list of people on Joe’s team back then would be nigh impossible, there are some key players that should be mentioned. Those included Alexandra Tibbets, Jed Nahum, Michael Dwan Matt Carr and Mike Hurt and Some real powerhouses that worked under them, giving the bench on this team extraordinary quality and depth, including Ryan Mackle, John Genna, Meera Bhatia, Sloan Ginn, Aaron Sandorffy, Michael Weaver, Dean Carignan, Gabriel Nanda, Gabe Bevilacqua, Mark Jacobson, Gary Hebert, Jilani Zeribi, Khan Smith, Erynn Petersen, Saleel Sathe, Maziar Sattari, Jenn Dorre, Bart Barden and Matt Romney, as well as many others I’m sure that I’m forgetting, with apologies.

Follow Eric Picard (@ericpicard) and AdExchanger (@adexchanger) on Twitter.

14 Comments

  1. Augustus

    Are these the same "world-class engineers" that wanted to convert DRIVE to run on Microsoft's in-house ad server that couldn't support flash, CPC/CPA cost methods, or 3rd party publisher inventory in 2007? Or the ones that claimed adCenter was fully "converged" and display capable in 2008? Or maybe it was the ones who attempted and failed to build a publisher ad serving system from scratch after spending 6 billion to acquire a company that had all these pieces. Let's not shit ourselves, the failures were abundant. Trying to pass it off as aQuantive leadership's inability to see a larger, Microsoft-wide vision is to ignore the inherent flaws in the Microsoft strategy you claim to have helped craft. Did you really think a network or exchange anchored with 90%+ Microsoft owned and operated inventory was going to be a solid platform play? Were you seriously banking on converting demand from adCenter to spend in display? Was keeping Microsoft's targeting data confined to O&O inventory and off the network (and ultimately the exchange) just something that was done because everyone got in a room and decided that they hated making money?

    You're right that we almost had it. If it weren't for that $6 billion, we (AQNT) would still be having it.

    Reply
    • Eric Picard

      Hi Augustus, nice to hear from you. Let me avoid a back and forth snipe-fest and just address a few factual issues with what you said, and maybe answer a few of your questions.

      1. "couldn't support flash, CPC/CPA cost methods, or 3rd party publisher inventory in 2007?"

      That's actually wrong on all counts with one caveat. Microsoft's Display Ad Platform is (and was) a pretty remarkable platform. It was not designed to support external users logging in - which was literally a user permissioning and data segregation issue. Frankly - that's not a problem that required world class engineers to solve.

      2. "Or the ones that claimed adCenter was fully "converged" and display capable in 2008"

      adCenter was never claimed to be "converged". I don't recall the date we began supporting display ads in adCenter (actually the pubcenter product) but I don't believe it was 2008. Given that the convergence project (systems integration) was literally never completed, and there's plenty of reasons I could give for that (e.g. plenty of blame to go around), that's just a silly statement. Many core systems became shared, but obviously since Atlas was able to be sold off, it remained standalone.

      3. "inherent flaws in the Microsoft strategy you claim to have helped craft. Did you really think a network or exchange anchored with 90%+ Microsoft owned and operated inventory was going to be a solid platform play?"

      The market clearly has shown that companies *without* the vast volume of inventory Microsoft could have passed into an exchange were able to be very successful both before and after the timeframe I'm talking about (Right Media and AppNexus are obvious examples) your point doesn't make much sense. AppNexus really took off after he additional supply from Microsoft was added. So yes - I think it was a very solid platform play. The market shows that to be true. Obviously Google made lots of rain with the DoubleClick platform as well - but given that there are other examples (Rubicon, Casale, OpenX, AppNexus) yes, Microsoft certainly could have done it. Given that we had solicitations from dozens of huge publishers and literally every major agency holding company, who literally asked us to build such a platform, yes - I think we could have done this.

      4. "Were you seriously banking on converting demand from adCenter to spend in display?"

      Banking on it? No. But was it applicable? Obviously it was - Google was clearly able to apply its AdWords demand against display (e.g. Google Display Network.)

      5. "Was keeping Microsoft's targeting data confined to O&O inventory and off the network (and ultimately the exchange) just something that was done because everyone got in a room and decided that they hated making money?"

      I'm not going to name any names. But this was literally the plan of record prior to the aQuantive acquisition. The plan of record was to open up all MSFT targeting data (effectively offer a DMP) and all inventory short of a set of premium established inventory onto the exchange. So you'd need to tell me the answer to your question.

      What I was told at the time was that doing so would put too much revenue risk on the O&O inventory to even allow a few million of impressions come out of hotmail to run adECN tests. And there was a lot of discussion about liquidity and asymmetry that would have been easily addressed if we were allowed to actually run tests. Not sure what more can be said about that.

      Eric

      Reply
      • Augustus

        Eric, we’re talking about a scenario where thousands of people lost their jobs or at least had their careers significantly derailed as a direct result of terrible strategy + execution. So I agree, let’s get the facts straight.

        1. "couldn't support flash, CPC/CPA cost methods, or 3rd party publisher inventory in 2007?"

        This is just a fact. Even up until about a year ago, AdExpert couldn’t support performance cost methods. I’m not even sure it can today. Point is, shortly after the acquisition, there was an engineering-led effort to convert DRIVE (a top 5 ad network at the time, mind you) to AdExpert by Microsoft. I personally was asked directly by the MSFT engineering team which of those features (among a laundry list of others) the network could live without, preferably all 3, was how it was phrased.

        2. "Or the ones that claimed adCenter was fully "converged" and display capable in 2008"

        Again, this happened. I won’t name names either, but let’s just say the head of engineering at the time announced exactly this statement at an all hands. I was there. A few months later, he left the company and we all discovered that this claim was without merit. A silly statement, I agree.

        3. Let’s not act like Right Media is a shining example of platform success, and I think AppNexus would be just fine without Microsoft inventory. Look, the anchor tenant plan was a great one, I’m not arguing that. But when the anchor tenant is the only tenant, you don’t have a platform. The publisher tools business was established and growing within aQuantive (and RAPT), and shortly after those acquisitions, the strategy to move all of those pub-side tools to a different platform is what killed it. Publisher customers were FIRED, if you recall. Fired them. They were paying money, Microsoft said, “nah, don’t want that business.”

        4. Search and display were separately managed budgets then, and they still are today. Again, just a fact. If the plan was to change the way the industry spends across these 2 formats, you needed a lot more than one more checkbox in the adCenter UI.

        5. Great, something we can agree on. Tell me this then, why was targeting data kept off of DRIVE immediately after the acquisition, and remained off of the AdMarket platform for the remainder of its existence? I can send you a Quick Wins doc where this is laid out clearly as something that would have made an immediate revenue impact within 90 days, and yet it was promptly shut down by Microsoft leadership… on the engineering side, btw.

        Your vision for adECN at the time was indeed a great one. Missteps were made by several folks (I know the ones you are referring to) that prevented the exchange strategy from taking hold and flourishing. But Google has been able to successfully execute a display network and an exchange, both best in their respective classes. That combined vision is something that was absent throughout the process, or at least never agreed upon in a way that allowed for successful execution. Those of us in the rank and file felt most of the pain resulting from these decisions and lack of solid leadership. It would be nice if ALL of the leaders responsible took their fair share of accountability for the disaster.

      • Eric Picard

        Augustus, as I feared things went down a didactic path. So let me try to address the intent of the article rather than going back in and picking apart your reply to my reply.

        My motivation for writing this article was that the press response to the AOL announcement was to basically repeatedly state, "Yeah, Microsoft never knew what they were doing in advertising." That simply is not true. The strategic blunder that the company made was in acquiring aQuantive and losing three years that they were never able to recover from. This was what I was alluding to in my article by referencing the digestion of a meal that was too large. Keep that in mind when reading my further comments below.

        Since I left Microsoft in 2010 (when it became clear to me that the company was not going to continue to invest in anything ad related but Paid Search) I no longer have access to any of the direct paperwork such as various presentations, and internal memos - many of which I wrote. But having a semantic argument about what was said by who at a meeting in 2008 at this point seems superfluous. I'll just say that I wrote most of the decks that were presented at engineering leadership / all-hands meetings post-acquisition - and I think your memory and mine are very different.

        I will address one thing that I haven't, which you brought up in both of your comments - regarding the publisher tools business. aQuantive had acquired Accipiter and renamed it Atlas for Publishers (or something like that.) I have nothing but respect for Brian Handly and the many folks from Accipiter that I knew over the years. But that platform was ancient and architecturally needed a complete rewrite. It was simply not possible for that platform to be the center of gravity of the business going forward. You reference this as if it was as simple as attaching RAPT to Accipiter and backfilling with DRIVE PM. That wasn't going to work on any level - just the handful of sales done with large publishers after the acquisition proved that Accipiter wasn't salvageable. It's unlikely you were aware of those issues, but I can tell you without any hesitance that this wasn't going to work.

        I can also tell you definitively that the decision to move away from plan of record on the post-acquisition timeline was not made by engineering. I was in those meetings. Your perspective is missing key facts - but I'm not going further on that.

        My point in this article was not to point fingers at anyone and blame them for Microsoft's subsequent failure in "non-search" advertising. I have huge respect for Brian McAndrews, Mike Galgon, Karl Siebrecht and Scott Howe - they're all very talented and intelligent executives. If this article seemed like it was taking pot shots at them - that certainly wasn't the intent. See my comment above about dragons and meals.

        The issue simply is that there were vast and complex systems across both companies, and a consensus based decision about which systems to bet on was allowed/caused to go on for more than 2 years. The big lesson to bring away (although I was Cassandra in this one - having learned this lesson earlier in my career) is that clear definitive executive decisions about paths forward (whether engineering or business) need to be made quickly and followed through on. But that wasn't the point of my article - so perhaps there's another article in there about how to do acquisitions well and what to avoid.

        I will respond directly to one statement you made, "But Google has been able to successfully execute a display network and an exchange, both best in their respective classes. That combined vision is something that was absent throughout the process, or at least never agreed upon in a way that allowed for successful execution."

        This is exactly the point of my article - the entirety in two sentences. Our vision of the future of the market was exactly the same as Google's prior to the aQuantive acquisition. And that vision was shared across engineering and business from the lowest to highest levels. Unfortunately it took more than two years to get that vision accepted and understood across the executive team post-acquisition. And that's the tragedy of Microsoft's advertising business, the lost years while the market surged past us. When it was clear that nobody was going to bless adECN as the exchange for Microsoft, I didn't raise any objections when Microsoft bet on AppNexus. At least there would be one platform in the market that matched our overall objectives - and we'd own some of it.

  2. Robin Laylin

    Eric, thank you for taking the time to describe this period at Microsoft, one with so much potential for not only advertising business pursuits, but also benefitting and leveraging Microsoft Enterprise identity, server, desktop, analytics products to deepen reach and value. Thanks again for the excellent summary!

    Reply
  3. Great write up as usual Eric. This tale reminds me of a Yankee fan talking about how great their team would have, could have been if only this that or the other had happened. And since they bought the superstars, had all the resources in the world, unlimited funds and still sucked whose fault is that?

    I am amazed at how much money Microsoft threw at this industry and lost. To me its a lesson in how not to run a business and a very real example of how large companies are seldom, if ever able to compete in emerging businesses.

    Reply
    • Eric Picard

      Alan - thanks for your comment! I absolutely hear you. But the reality is that this is more along the lines of Xerox Parc lamenting the Graphical User Interface being credited to Apple. 😉

      My main motivation for writing this was that most press I read in response to the AOL deal got this all very wrong. Repeatedly I was reading sentiment stating that "Microsoft never knew what they were doing in advertising." That's just simply not true.

      Microsoft's in-house team was ahead of the market curve. And we were executing well toward that plan. Not without missteps, mind you. But there seems to be a sentiment that Microsoft didn't know what to do in the ads space, which isn't true - we were doing very well.

      As far as the lessons you suggested - it's really hard for big companies to take on new challenges and succeed. So we're in agreement. But Microsoft has built more large new businesses than any other company - so it can be done - the question is how to do it.

      Microsoft's past had shown that big moves with either huge internal investments with giant teams (Office taking over the world or the huge investments and losses of Xbox before it became profitable) or large acquisitions driving big new incremental businesses (Great Plains driving MSFT's enterprise business forward) were good patterns. But Microsoft had never faced a competitor like Google before - and they proved impossible to fast follow against. The Bing investment turned out to be much more like Xbox than Office.

      Reply
      • Thanks Eric for your response. The issue is that neither the video game console market or search were emerging markets. They were both well established businesses for many years with many parties at play. So while I appreciate your response, it doesnt actually hold water.

        MSFT screwed up with a massive amount of enterprise level failure. My dealing with the company during this time (and there were many from several different companies) was one of arrogance and hubris. You guys thought you were smarter than everyone else (not you mind you, you were and still are very kind and humble guy). But that kind of arrogance always translates into failure. And boy did it ever in this regard.

        I realize that you gave MSFT a lot but they didnt give you what you truly needed. The reigns. And that is one of many reasons that they lost big time. But most of all is that they had no business entering into the ad business. I think that was and will always be their failure. Trying to muscle their way into a sector that really was about as far removed from their core competency as possible.

        On another note: I wish AdExchanger had more dialog on their site. This discussion is one of the best I've read here but they dont promote dialog between the writers and the readers and certainly dont provide a channel for engagement.

      • Eric Picard

        Alan - thanks for your thoughtful reply to my reply. 😉

        I don't think Display advertising was much of an emerging market at that time, but of course the movement toward exchanges and real-time bidding was an emerging space.

        I'm not sure who you dealt with at Microsoft in those days, but I will tell you that I was repeatedly surprised at the lack of arrogance and hubris I experienced across the board while working at Microsoft. Not to say there weren't egos - but your experience was not the one I had.

        Microsoft was on a great path from 2004 - 2007 and making great strides toward an epic head-to-head battle with Google. But the lost years that happened after the aQuantive acquisition were not possible to recover from.

        Note - I firmly believe that if aQuantive hadn't been acquired, they'd still be a successful business in the adtech space. So the tragedy cuts in both directions.

  4. Robin, who was another unsung hero in this saga is definitely right in his congrats for Eric on the story. There were so many other non pursued threads - around the world was part of the shame of it.

    Reply
  5. Realist

    Eric, it took some courage to write what you did. Don't let the haters get you down. I agree more with Augustus, most the genius of Microsoft engineers is in building three-legged stools, re-inventing wheels and blowing through budgets. Moonshot projects that need 1000 engineers? Sorry but ad tech ain't NASA.

    Reply
    • Eric Picard

      Hi Realist. The reality is that large scale teams at huge companies frequently are less efficient than smaller companies. And remember at the time we were competing with Google, who had well more than 1,000 engineers working on the project. Microsoft's "fast follower" approach that had worked well for all its major successes previously (e.g. Office) set the stage for large resource requests.

      Obviously we didn't throw 1,000 engineers at adECN when we completed that acquisition. And we did bring the first RTB exchange to the world - unfortunately we just were not able to get it launched. It sat fallow for two years before it died on the vine.

      Again - obviously you never spent any time with the kinds of folks I'm referencing. If you'd spent any significant 1:1 time with Tarek Najm, Brian Tschumper, Sachin Dhawan, Nitin Chandel, Subir Sidhu, Scott Tomlin, John Beaver, etc... you wouldn't feel like you do. My guess is you didn't spend any time with the core engineering team at Microsoft. Your perspective isn't informed by reality.

      Reply
  6. Microsoft just laid off or in the process laying off 7,800 people. Unfortunately world-class engineers will not solve this issue.

    "Finland loses 2,300 jobs...pretty much killing the city of Salo," Pekka Pekkala tweeted. I think we delay scoring some PR point on on this and reflect upon those that are not so fortunate.

    Reply
  7. Ask Me

    I worked on the premium accounts team for search from its inception in 2005 until a couple years ago. We managed the accounts for the largest direct and agency PPC advertisers. IMO, we lost the search battle in three ways: First, we never got the functionality in adCenter that we asked for, and for which our clients were begging. An example of that is simple A/B testing of ads. Second, we changed our editorial focus from protecting brand name ownership to opening it up to predatory bidding by the lowest of the low advertisers (arbitrage, click farms, etx.). Third, over the objections of literally every single premium advertiser, we handed the management of their accounts over to Yahoo, who were known for innaction and poor responsiveness. In essence, we traded development must-haves for expediency (what could be done cheaply); we traded large advertiser trust and advocacy for a quick grab at higher average RPS; and we traded, finally, our integrity for a market gain which began erroding the moment the switch was made.

    Reply

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