Media to move to Web, Gates says

Microsoft thinks the advertising business model for traditional media — venues where advertisers still channel most of their spending — will fall apart faster in the coming five years.

Meanwhile, it's positioning itself as a prime location for the kind of interactive, targeted advertising that is defining the Web and other digital media.

Chairman Bill Gates spelled out his vision of the future of media Tuesday, in front of about 1,000 advertising professionals in Seattle for Microsoft's Strategic Account Summit of its top advertising customers.

"We're saying newspapers will go online, and there will be massive innovation that comes out of that," Gates said. "We're saying that TV, the biggest ad market in the world, will completely go online and have the kind of targeting interaction that you only get out on the Web today.

"As dramatic as things happening on the Web are, that's actually what all advertising ... will be in the future."

Gates painted a grim picture of the transition for traditional media.

"I have a lot of friends in the newspaper industry and, of course, this is a tough, wrenching change for them, because the number of people who actually buy, subscribe to the newspaper and read it has started an inexorable decline," he said.

With that decline, Gates said, advertisers are shifting their budgets to new areas.

They will spend about $445.5 billion globally in 2007, according to ZenithOptimedia's most recent quarterly forecast. Of that, online is expected to get 7 percent of the pie compared with newspapers' 28.3 percent.

By 2009, online is forecast to grow to 8.7 percent, while newspapers dip to 27 percent.

Not everyone agrees on the pace of the transition to digital media and the demise of traditional forms.

"The timeline between now and when that happens I think is questionable," said David Cohen, executive vice president at Universal McCann. His agency is an arm of the McCann Worldwide ad agency, which counts Microsoft among its blue-chip clients.

"I know that the newspaper industry is definitely going through an evolution, but ... there's still a tremendous amount of circulation in some of these markets," Cohen said.

Microsoft is developing an array of advertising inventory and media content to connect advertisers with consumers and claim more of the growing online ad market.

The company is also producing the tools and platforms — such as MSN, the Xbox game console, mobile devices and its new online video technology, Silverlight — to create and distribute the ads themselves.

"There are very few companies that have such a wide range of digital assets that you can run messaging across all those platforms," said Cohen, who works with clients including Johnson & Johnson, Intel, Bacardi and the U.S. Army.

He said Microsoft's challenge is to link all of those platforms to give advertisers a comprehensive profile of a consumer — her preferences, what ads she viewed in the last month and which ones she acted on.

"That's the code that they're trying to crack, and if they do, they'll be unmatched," Cohen said.

It makes Microsoft's rivalry with Google for online advertising more interesting, he said.

Google dominates the search-advertising industry by drawing so many more people to its search engine.

"Google is obviously a great, fierce competitor," Cohen said. "They're doing lots of stuff right, but I think you can argue that they don't have nearly the range of assets that a Microsoft brings to the party."

Gates gave other specific examples of old media facing withering competition from new technologies.

He said IPTV, the underlying technology for TV over the Internet, makes traditional broadcasting obsolete, supplanting the model in which one show goes to many viewers who may or may not be interested.

The IPTV model presents opportunities for advertisers to tailor messages to viewers.

"In this environment, the ads will be targeted, not just targeted to the neighborhood level ... but we'll actually know who the viewers of that show are," Gates said.

In a nod to how key the advertising effort is to Microsoft, Gates plans to focus on online services, search and advertising for the remainder of his 15 months working full time at the company. He plans to transition to full-time work at his philanthropy in summer 2008.

In another nod, the company gave each of the summit's attendees a Zune digital music player and a copy of Office 2007.

Benjamin J. Romano: bromano@seattletimes.com