Microsoft shares rosy update on its in-game advertising strategy

Summary:Microsoft acquired in May 2006 Massive Inc., one of the leaders in in-game advertising market. Katherine Hays, a senior director with Microsoft's platform and services division -- and the co-founder of Massive -- offered Wall Street analysts and other interested parties an update on what Microsoft has been up to in this space, via a Web-conference meeting on March 15.

Microsoft is pinning its hopes on in-game advertising as a future moneymaker for the company across not just Xbox Live, but also MSN, Windows Live and other Microsoft properties.

Microsoft acquired in May 2006 Massive Inc., one of the leaders in in-game advertising market. Katherine Hays, a senior director with Microsoft's platform and services division -- and the co-founder of Massive -- offered Wall Street analysts and other interested parties an update on what Microsoft has been up to in this space, via a Web-conference meeting on March 15.

Microsoft has made no bones about the fact that it is expecting a combination of ads and subscription revenues to fuel its company-wide "Live" software + services strategy.

Massive, a startup that specializes in placing advertising into videogames, is one of Microsoft's secret weapons on the consumer side of this space.

Via in-game advertising, major advertisers, ranging from Coca-Cola to Fox News, can have ads for their products and services inserted right into videogames so that they will appear a natural part of a game scene. The CPM (cost per thousand impressions) rate for these ads is at a premium because they reach a hard-to-attract demographic -- males between the ages of 18 and 34. And unlike TV ads, in-game ads cannot be skipped over or time-shifted, giving advertisers a truly captive audience.

Hays cited Yankee Group-Parks Associates data from January 2007 in claiming the in-game advertising market as being worth $589 million by 2010.

Hays told March 15 conference-call participants that her division currently has more than 200 active ad campaigns running across 53 game titles. She said Microsoft expects to have in-game advertisements in place in more than 100 game titles before the end of 2007. Massive has relationships with more than 100 "blue-chip" advertisers, Hays said, including the likes of ABC, TMobile, Gillette and TLC.

In-game ads give Microsoft access to three potential customer segments: Game publishers, advertisers and gamers themselves, Hays said. Massive, and now Microsoft, is focusing on three types of ad units: 2D dynamic ads; 2D video ads; and interactive ads, she said.

"Games fit within Microsoft's broad advertising strategy," Hays said.

The in-game ad market is small but fast growing. In addition to dynamic in-game ads, the potential space encompasses everything from gamer-focused Web sites, to so-called advergames, or games built to advertise a product.

Last year at the annual Microsoft Financial Analyst Meeting, Microsoft Chief Advertising Strategist Yusuf Mehdi showed off a demo of Massive's technology.

"If you think about the world between TV and PC, on PC they're very bland text ads, but you interact. On TV, you're in the 10-foot, and you're sitting back and you're watching, but you don't interact. Here you get the best of both," Mehdi told analysts. "Online gaming is a very hot area; between Xbox and the acquisition of Massive we really are the leader in this space, and they're going to drive very strongly."

Mehdi made it seem as though Massive's technology and Microsoft's adCenter advertising engine would be joined at the hip. But when asked on the March 15 call about integration with adCenter, Hays said, "No formal plan has been outlined at this point."

Hays also declined to comment on potential competition from AdScape, a company which sources have said Google may have acquired last month. AdScape is an in-game advertising vendor. Hays said that the Google acquisition still has yet to be confirmed and that even if the deal does come through, Massive has a two years of experience in the business.

Topics: Microsoft

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Mary Jo Foley has covered the tech industry for 30 years for a variety of publications, including ZDNet, eWeek and Baseline. She is the author of Microsoft 2.0: How Microsoft plans to stay relevant in the post-Gates era (John Wiley & Sons, 2008). She also is the cohost of the "Windows Weekly" podcast on the TWiT network. Got a tip? Se... Full Bio

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