Versus GooYa (or YaGoo?), Ballmer's secret sauce will have to be special

I just got done listening to, and transcribing parts of two interviews.  The first of these is parts is from the interview of Microsoft CEO Steve Ballmer by Elevation Partners co-founder Roger McNamee (the segment about the new business models).  The second of these excerpts comes from the subsequent podcast interview of Roger McNamee by my colleague Dan Farber.  The strategic advantages that Ballmer speaks of are largely ones that can be tapped by his competitors.If the future is all about what happens in the online space, then Microsoft now finds itself in an unusual position: third place behind Google and then Yahoo. 

In McNamee's interview of him, Ballmer freely admits that Microsoft is the "Johnny-Come-Lately" when it comes to successfully monetizing "inventory": web-speak for page views.  But that admission comes as a part of larger explanation of why Ballmer sees Microsoft winning a come-from-behind victory against the current first and second place holders.  I decided to transcribe that explanation and parse through it to see if we there were any clues to just exactly how Microsoft could or will pull-off such a coup.  Here is what Ballmer said:

The way advertising is bought and sold will be fundamentally different in the future than it is today. That, I think we all agree. The importance of technology in the sale of advertising will go up. There's many issues to confront... privacy issues.....In some senses, the way to think about what we're doing with our Ad Center service or what some of the other guys -- Overture, Google -- are doing is creating...think of it as an eBay for advertising. How do you  bring buyers and sellers of advertising together.  How do you do that in a way that creates value for both of those and gives the consumer an advertising experience that's not disruptive but is tailored and additive to the consumer advertising experience while retaining appropriate respect for end user privacy and that's a set of technology issues.

The advertising industry is one of the biggest industries in the world. It will have more disruption from  technology frankly more than any of the other businesses that have gotten a lot of attention and that will affect the future of media companies.  That will affect the future of software companies and a variety of others. We think we have a lot of ideas around that topic. But, in a sense, we're a Johnny-Come-Lately.  And really, the guys you have  say who came first were Overture, and then Google, and we're a little bit later to the game. But I think we really grock what's going on.

In order to get that kind of marketplace to critical mass, you have applications yourselves. Just like you could say we needed an Office to bootstrap a Windows, you need some applications to help bootstrap that marketplace.  But, its ultimate success is going to be not just based on your own applications. Google has bootstrapped their marketplace with search. We are bootstrapping our own marketplace with search, Hotmail, IM, a lot of things which have ad inventory. But at the end of the day, it's really going to be the ability to create a mass marketplace that's going to give value to buyers of ads, sellers of ads, and the consumers.

In parsing Ballmer's words, I think we draw some conclusions about Microsoft's plans and how it thinks it can win.  For example, Ballmer repeatedly mentions technology and as you can see, I boldfaced most of those mentions.  At the end of the day, Ballmer thinks Microsoft can win on better technology.  But technology to do what? Ballmer dropped some clues here too. For example, he likens the way advertising is bought and sold today in the Overture/Google world to auction ads off on eBay. But in the same breath, he sees the entire ad ecosystem -- everything from the buying, selling, and consumption -- going through some sort of sea change that maximizes the value delivered to all parties.  Today, if you look at Google, for example, the buying and selling of ads is pretty efficient (delivering value to buyers and sellers) and the ads are often contextually delivered into the end user environment on the basis of relevance thereby providing some value to end users. 

Based on what Ballmer says, Microsoft has some ideas on how that ecosystem can not only be improved upon, but how Microsoft can drive those improvements with better technology than Google and Yahoo.  He also pulls one other ace out of his pocket and talks about how inventory across search, Hotmail, and instant messaging is one of Microsoft's natural advantages, crediting Google with only have inventory in the area of search. 

So, Microsoft advertising is going to somehow be massively different than it is today and Microsoft will have the secret sauce that helps it to overtake Google and Yahoo.   If everything Ballmer says is right, then I agree that Microsoft could easily overtake Google and Yahoo.  But only as long as it can be turned on tomorrow.  And it can't.  Changes to the online advertising environment happen very incrementally.  There's no way for Microsoft or anybody for that matter to roll out something new and take everyone by surprise because in the advertising world, word gets around pretty fast about what media companies are launching in the way of programs and technologies which in turn usually gives the competition plenty of time to respond in kind. 

There's also the assumption that Google and Yahoo don't have some of their own ideas or secret sauces when it comes to whatever sea change is coming.   So, in essence, time is Microsoft's worst enemy.  That doesn't mean Microsoft can't overtake Google and or Yahoo.  But the strategic advantages that Ballmer speaks of are largely ones that can be tapped by his competitors.  Not to mention that Yahoo does have huge inventories in its mail and instant messaging networks (Ballmer didn't mention Yahoo on the inventory point) and Google actually has the luxury of time (and perhaps some wireless spectrum) to build inventories on the instant messaging front as well as on email (with Gmail).

But don't take my word for all of this.  I also thought Roger McNamee delivered a fairly prescient analysis of the situation in his post-interview thoughts with Dan Farber:

[Timecode - 6:02] I believe that Microsoft's issues on the web are largely issues of culture and scale.  there's an old rule in silicon valley that you know well called the two pizza rule, which  is that nothing interesting ever gets developed by a group that cannot in fact be fed by two pizza.  And Microsoft has development groups that often numbering in hundreds ... and that produces lots and lots of improvements on existing products. It's really hard to be innovative.
[Timecode 8:52] If you're an advertiser, they're going to make the process of identifying consumers, targeting them, purchasing the advertising, putting it up and executing if you will -- the transactions associated with advertising -- they're going to make that experience easier and better than anyone else. I think if they do that, they will maximize the value of whatever platform they have. What remains to be seen is whether their platform is as compelling from a content perspective, as others.   There is no substitute for the Super Bowl. So it doesn't matter how easy you make the purchase of advertising. If you don't own the Super Bowl, you're not going to get to charge the kind of rates per minute that guys who have the Super Bowl have and I don't know that Microsoft is going to be able to build its own content platforms that are as compelling as whatever the latest and greatest things are.