Microsoft Vies for the Third Screen

The ScreenTonic buy is no singular event and directly relates to Microsoft's Tellme Acquisition. Coincidentally, Microsoft today announced that it had completed the Tellme acquisition.

Microsoft clearly is on a buying spree, particularly with respect to Google competition and advertising positioning, with more acquisitions likely to come. The ScreenTonic acquisition also resonates with Microsoft's push for strong presence on the three screens—TV, PC and mobile device.

It's revealing that Steve Berkowitz, Microsoft's senior vice president of the online services group, is headliner for this announcement. The former Ask CEO is in part responsible for MSN and Live business development. To that end, the acquisition is much broader than mobile devices.

Leading sacred cows to slaughter
The cell phone is a kind of sacred cow that mobile carriers have been reluctant to slaughter. Mobiles are highly personal devices, with stronger sense of proprietorship. Aggressive advertising risks putting off subscribers and increasing churn.

Forrester Research found U.S. attitudes to be fairly negative about mobile advertising, with 79 percent of online consumers describing the idea of ads on their cell phones as "annoying." A mere 3 percent of consumers said they would trust text ads and only 1 percent said they would be influenced by text ads.

Early mechanisms for delivering ads include:

• Text messages
• Banners on mobile-formatted Web sites
• Contextual local search
• Bluetooth push
• Video streaming or downloads

Customer resistance to mobile advertising is somewhat offset by the marketing potential: According to IDC, cell phone shipments exceed 1 billion units a year. Advertisers want to reach the smaller screen. The cell phone is a captive device, with a large, captive audience.

A March report from the Online Publishers Association outlines big advertising opportunity. Seventy-five percent of mobile devices have Web access, according to a survey of more than 6,000 mobile users from the United States and five European countries.

The group claims that in the six countries, mobile Web usage is 32 percent and a whopping 41 percent in the United States and 54 percent in the United Kingdom. But those mobile Web numbers seem unbelievable to me, although they're sure to tantalize potential advertisers.

Forrester numbers are likely more realistic. A December 2006 report revealed that 12 percent of U.S. households have data-capable cell phones and use data capabilities. Thirty-two percent of U.S. T-Mobile households have used data services. However, only 11 percent of U.S. households with a mobile phone access the Internet on the device. No Surprise: messaging is the main data activity.

The situation is dicey. Most U.S. consumers and those in France, Germany, Italy, Spain and UK have data-capable phones, according to the Online Publishers Association study. But mobile resistance is fairly high, Forrester asserts.

However, in a February report, IDC singled out emerging markets—where the first household Internet-capable device is likely to be a cell phone rather than a PC—to be the place where advertisers can reach a large number of individuals.

Additionally, both the Forrester and Online Publishers Association studies reveal that younger consumers are more likely to access the Internet from cells. The demographic is also a marketing segment that advertisers hotly pursue.

Taking sacred cows Live
There is no clear analyst consensus on the mobile advertising marketing opportunity. Projections range from the hundreds of millions in 2007 to $1 billion on the low end by 2009. ABI Research's forecast of $3 billion in mobile advertising revenue by early 2008 and whopping $19 billion by 2011 has to have some advertisers drooling like hungry babies.

No surprise, Google greatly covets the mobile market, which might be reason enough for Microsoft to make a play. Last year, Google started pushing mobile ads in some international markets and later began testing here in the United States. Like Google and Microsoft, Yahoo also wants a slice of the mobile advertising pie.

Microsoft brings some interesting assets to the mobile advertising space that could be decisive if there is good execution:

• Carrier relationships. As a mobile operating system provider, Microsoft has to work closely with device manufacturers and many carriers. In that role, Microsoft is partner with the carrier, which owns the customer relationship. Google seeks to insert itself between the carrier and customer, tapping revenue for which carriers absolutely would want a cut. It's one thing for Google to operate on the Web, where no one company owns the pipes, and another to profit from the cellular network.
• Windows Mobile. True, Microsoft's mobile operating system share slipped on smart phones in 2006, according to market researcher Canalys (second-ranked Windows Mobile had 14 percent share compared to 67 percent for leader Symbian). That said, Canalys sees Windows Mobile benefiting from new devices and increasing demand for mobile e-mail. The operating system is important for the aforementioned carrier relationships and allows Microsoft to bundle some software that would tap advertising-bearing Live services.
• Windows Live. In a March report, Forrester offered several best practices for successful mobile marketing, such as taking a multichannel approach. The idea is to coordinate ads that transcend mediums, such as the Web, TV and the mobile. Microsoft's position here increases as it builds out Live services and supporting MSN adCenter infrastructure across platforms—Web, game console and mobile device. Prediction: Microsoft will make yet another stab at MSN mobile video, which can feature ads upfront as they do today on the Web. Live services are natural billboards for certain kinds of advertising. Tip for Microsoft: How about bringing some Personal Expressions for Windows Live Messenger to mobiles?

Microsoft is on a no-holds-barred advertising rampage. Suppose the rumors are true and Microsoft is even just considering an acquisition of (or maybe partnership with) 24/7 Real Media. The company is rapidly assembling together the means to more aggressively compete for advertising dollars on the Web and Internet-connected devices, including game consoles.

For all the talk of Google competition, Microsoft's eyes are on a much bigger prize. The majority of ad dollars are still spent offline, particularly on television. As these ad dollars flow elsewhere, such as the Web or mobile devices, the companies with the biggest buckets will catch the money as it flows by. All Microsoft's online efforts for the last four years have been about building the biggest bucket—and the same can be said of Google and Yahoo.

Today's announced ScreenTonic acquisition plugs another hole in Microsoft's bucket. Surely, the company wouldn't want to come full circle to the same end as Henry.

Related Posts:

• RIM Around the Rosies, Pocket Full of Posies, Microsoft Watch, April 23, 2007
• Microsoft Reorganizes Search, Microsoft Watch, March 21, 2007
• Tellme About Dial Tone 2.0, Microsoft Watch, March 15, 2007
• Tellme What?, Microsoft Watch, March 14, 2007
• Who Shot Windows Live?, Microsoft Watch, March 8, 2007
• Microsoft Seeks More Mobile Relevance, Microsoft Watch, Feb. 12, 2007
• Windows Mobile Turns Six, Microsoft Watch, Feb 8., 2007