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Originally published Monday, May 19, 2008 at 12:00 AM

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Microsoft hosting ad executives

In March 2006, Microsoft CEO Steve Ballmer told a conference of advertisers they were the new bedrock of his company. Since then, Microsoft has...

Seattle Times technology reporter

In March 2006, Microsoft CEO Steve Ballmer told a conference of advertisers they were the new bedrock of his company.

Since then, Microsoft has spent $6 billion on aQuantive, its largest acquisition, and offered $47.5 billion for Yahoo to improve its offerings for advertisers and publishers.

With a Yahoo deal of some kind back on the table, 500 of Microsoft's most important advertising and publishing clients are descending on Redmond this week.

They are eager to hear details of Microsoft's proposed alternative transaction with Yahoo, announced Sunday, and how it will help Microsoft compete with Google in search advertising — now the biggest online category.

Advertisers also want to know how aQuantive has Microsoft better positioned to run their digital campaigns than it was a year ago.

"The message I would want to hear is, OK, advertising is your No. 1 priority. How have you done against that statement from this time last year?" said Shar VanBoskirk, a Forrester Research analyst focused on interactive marketing.

"What is it that aQuantive has allowed you to do and how does that bring business value back to Microsoft, or to me as a client?"

In the last quarter, Microsoft's online-ad revenue increased $175 million, or 39 percent, to $619 million.

Of that increase, $47 million came from the aQuantive acquisition. But the company's online-services business still lost $228 million in the quarter as sales and marketing, data center, online content and acquisition expenses increased.

"The fact is that we are not where we want to be in this business yet and we've been in this position longer than we'd all like," Kevin Johnson, president of Microsoft's Platforms and Services Division, which includes online services, told employees in an e-mail Sunday.

"To that end, we will be accelerating elements of our core strategy, and breaking ground in new areas," he wrote.

Johnson said Microsoft has "many options" including the proposed alternative transaction with Yahoo, which some reports suggest may involve a purchase of just Yahoo's search business.

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Leading Microsoft's pitch to advertisers is Brian McAndrews, the CEO of aQuantive and now a senior vice president in charge of Microsoft's Advertiser and Publisher Solutions group. He is hosting the event, now called advance08 Advertising Leadership Forum.

As in years past, Microsoft is bringing in heavyweights from the advertising and media worlds, such as former Disney CEO Michael Eisner, director James Cameron and author and online entrepreneur Arianna Huffington, to speak alongside its own executives, including Chairman Bill Gates.

Attendees were told to expect significant announcements from the Microsoft groups working on search and advertising technology. Johnson, in the e-mail, provided more details.

"On Wednesday, we will be announcing a major new initiative that our search teams have been driving," he wrote. "We are getting better and better with our core algorithmic search, and at the same time, we are investing to differentiate in vertical experiences and to disrupt the current model."

Johnson said one goal with search is to "sharpen our focus on user experience and business model innovation."

Already this year, Microsoft has launched a push to divide credit for success in digital advertising campaigns among all the forms of advertising a consumer might encounter on the way to a purchase.

Currently, the "last ad clicked" standard — usually a search ad, the category dominated by Google — gets all the credit, even if an online video ad or banner ad first prompted a consumer to search for a product.

VanBoskirk, the analyst, said this is an age-old challenge that exists in the traditional ad world, too. Advertisers struggle to understand how much that $1 million television pitch or billboard helped generate sales, she said.

Another hot topic is creating marketing campaigns that target a very specific online audience, such as Boston-area women who earn at least $60,000 a year and visited an automotive Web site in the last 10 days.

The goal is to be able to track individuals in the target audience as they move around online and present them with relevant advertising at the moment they're most receptive to it.

All the major online ad players have been trying to build large advertising networks that can target with greater detail across various forms of advertising, VanBoskirk said.

Advertisers will be looking for details on how much progress Microsoft and aQuantive have made in joining their ad networks, she said.

As more ad buys shift from traditional to digital, advertisers will closely evaluate Microsoft's various properties as destinations for their spending.

Microsoft owns some of the most-trafficked sites in the world, such as the MSN home page, and advertisers will weigh how much of their budgets to spend there versus on Yahoo or MySpace.

The company plans to shift more engineering resources to improving its display-advertising opportunities, as well as new forms of advertising across its online properties.

Johnson acknowledged Microsoft has failed to clearly brand its online offerings.

"Our brands are fragmented and confusing today, and we recognize a need to clarify and align our online branding," he wrote.

Benjamin J. Romano: 206-464-2149 or bromano@seattletimes.com

Copyright © 2008 The Seattle Times Company

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