Mobile ad market part of Microsoft's goal in Yahoo bid

Software company's stream of acquisitions last year already points that way

Gaining a bigger share of mobile advertising is a big reason Microsoft is bidding US$44.6 billion for Yahoo, according to industry observers.

Mobile advertising is "part of what Microsoft wants to get into, no doubt," said Phillip Redman, an analyst at Gartner. "Leadership in mobile advertising is still unclaimed, while Google is threatening to do there what it did on the Internet, so Microsoft is being preemptive."

"Yahoo touches so many customers and there's so much advertising potential in this deal," said Jeffrey Kagan, an independent analyst in Atlanta. "It's huge."

Although Microsoft is a big, strong company, it can still find it difficult to reach out to markets such as advertising, but Yahoo has an estimated 500 million global monthly users of Internet access, he said. "It's the kind of world Microsoft loves," Kagan said.

John Byrne, an analyst at Technology Business Research, said that even though mobile advertising is small today, it will grow exponentially in 10 years, especially with GPS and other location-based technologies.

"Imagine, a retailer will be able to know where somebody is, and their proximity to their stores, so it's very valuable," he said. A Microsoft-Yahoo deal would provide an opportunity "to really seize an advantage over Google."

Predictions of a mobile advertising market reaching US$5 billion in 2012, up from US$106 million for the US and Western Europe in 2007 "are attainable," Byrne said.

While Microsoft executives refused to discuss the mobile advertising opportunities in purchasing Yahoo, they did say that mobile advertising is important to the software maker in general.

"It's very important," said Matt Champagne, director of mobile product management at Microsoft, in an interview. "Mobile advertising is a great opportunity and an emerging opportunity."

He said that Microsoft is always assessing ways to fill gaps in its technology. Last year, Microsoft purchased ScreenTonic SA, a Paris-based mobile advertising start-up. In August, the company completed its US$6 billion purchase of aQuantive, the parent of digital marketing service and technology companies under three brands, including Atlas, a publishing tool provider.

Microsoft has already begun offering capabilities to carriers, including Sprint Nextel, to provide GPS and other location information to users. For example, a user might be shopping for an item and can use a cell phone to find stores nearby with a similar product. In that example, stores can offer ads to users who have opted in for the search capability, Champagne said. Last June, Microsoft announced its MSN Mobile version.

Through Microsoft's Tellme Networks purchase last March, voice-enabled searches using phones are possible, Champagne noted.

Interest in mobile search and mobile advertising from users is strong, he said. "It's going great," he said, noting that the basic focus of mobile advertising today is on display and text ads, but the industry is moving toward an era when video advertising will be important.

Yahoo spent much of last year testing and expanding its role in mobile advertising, setting up an extensive trial with fashion magazine Elle during Fashion Week in New York, among other projects.

Users have shown a willingness to opt-in to advertising if it can suit their purposes, Champagne added, noting that getting a series of ads from the nearest pizza shops or other retailers can be quite useful for someone in a hurry. Still, Microsoft is taking a "measured and slow approach" to meet the concerns of users who don't want advertising on phones.

"We're really, really excited about mobile advertising," he said. "The valued audience is the one that views the ad as a value rather than a nuisance." Some services and ads offered to mobile users "are considered valuable content."

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