With today’s news re Microsoft looking to acquire Yahoo, it seems like they finally get it –
The performance-based advertising world is like no other space that Microsoft has ever played in before.
In spreadsheets, browsers, servers, databases, etc, etc – the Microsoftian way of doing business works like a charm. In all those categories, dog chasing proved to be a great way for Microsoft to win the market because it could out-price and out-patient its competition. Oh – and tying products into the OS monopoly didn’t hurt too much either… 😉
With performance-based advertising[1], dog chasing ceased to be an option. You can’t undercut competition, because competition ain’t pricing their product (it’s the customers/advertisers who do, and they price it upwards, not downwards). You can’t out-patient your competition because performance-based advertising has this wonderful virtuous cycle about it:
- The more clicks you have, the smarter your yield-optimization algorithms get…
- …as the algorithms grow smarter, you can better predict your revenue per page…
- …as your revenue-prediction power grows, you can better price new distribution deals with the confidence of not losing money…
- …the better you can price deals, the more distribution you get…
- …and the more distribution you get, the more clicks (and $$’s…) you have.
This virtuous cycle means that with every *second* that Microsoft was spending figuring out its world-domination dog-chase plan, Google (and others, Quigo included) were opening the gap making it even closer to impossible for Microsoft to become a real player in this space. And every purchase of a DoubleClick, RightMedia, etc just moved way more click data out of Microsoft’s hands, opening the gap even more. Chasing a dog that’s only gaining momentum faster than you, well – that’s not a great chase to be in…
I’ve had many conversations with good friends over at Microsoft over the past couple of years. And while the notion was that "we changed", "there’s no more NIH Syndrome", "we’re ready to make bold acquisitions needed to win this market", etc, etc – It’s clear now that none of that really registered there and the plan all along was to dog-chase Google to victory. Looks like the price for realizing this mistake is going to be pretty big.
A ton more coverage on TechCrunch, Henry Blodget… oh what the heck – and everyone else on the planet.
[1] Disclosure: I’m co-founder of Quigo, a player in this space.