Investments in mobile ad exchange technology and AppNexus highlight intensifying rivalry with Yahoo and Google.
Microsoft's ad exchange strategy has often been hard to decipher. Its three-year-old acquisition of AdECN was a decisive gesture, but it has since withdrawn into an opaque development process that has occasionally seemed to stall out. Meanwhile exchange rivals Yahoo and Google have trumpeted their growth and ability to help marketers transact in real-time.
But Microsoft now appears to be gaining traction in the exchange-traded display arena. Its recent moves include the integration of real-time ad buying in earnest, a $50 million investment in real-time display platform AppNexus, the creation of a mobile ad exchange, and the use of exchange-traded media to supplement standard display buys on the Microsoft Media Network.
The Microsoft Advertising Exchange - a name that will eventually replace AdECN - now supports approximately 8 billion impressions, or transactions, per month. That's in contrast to Yahoo, which says it manages 9 billion transactions per day through Right Media - or 30 times more than Microsoft.
Aaron Easterly, Microsoft's GM of advertiser and publisher solutions, said Microsoft's volume will be much higher by the first quarter of 2011 as the company integrates new real-time bidding capabilities from AppNexus. "It gives us the ability to roll out our exchange play that much faster," he said.
AppNexus, based in New York, operates a platform that has been used by roughly 150 ad networks in 12 countries. Execs claim its volume of ad transaction is about 4 billion a day. Microsoft was an early AppNexus customer, and the Microsoft Media Network is one of the top five networks AppNexus currently works with, according to CEO Brian O'Kelley.
AppNexus will quickly bring volume to the Microsoft Ad Exchange by introducing both supply and demand from its ad network customers. "We can help them get scale that they couldn't otherwise," said O'Kelley.
Microsoft's zeal for AppNexus is such that it has taken a financial interest in the firm, joining a $50 million C-series round that was announced this week. As a bonus, the investment may bring Microsoft some insight into its adversaries' product strategy. AppNexus CEO O’Kelley was previously CTO at Right Media, and President Michael Rubenstein led Google/DoubleClick's ad exchange development process until its 2009 launch.
Easterly describes Microsoft's motive in loftier terms.
"AppNexus has brought a bunch of unique partners and has done a good job creating an open platform specific to real-time bidding," he said. "The partner approach and the openness of the platform are in general things Microsoft wants to support."
In addition to using AppNexus to support real-time bidding on its sites, its ad network, and its exchange, Microsoft has begun supplementing regular ad buys on the Microsoft Media Network with exchange-traded inventory. That extra inventory carries a lot of potential reach, since AppNexus claims to support 4 billion transactions or impressions a day.
It's not uncommon for ad networks to offer to extend client campaigns this way - either by building their own software to connect with exchanges or by working with demand-side platforms, a category that includes Turn, MediaMath, DataXu, and arguably AppNexus as well.
Microsoft's Mobile Exchange
Additionally, Microsoft has put the pieces in place to create a mobile ad exchange, called Microsoft Advertising Exchange for Mobile.
The product, geared toward developers, was released in conjunction with the mobile advertising software developer kit for Windows Phone 7. It will work by allowing Windows Phone 7 app developers to plug into demand from mobile ad networks like Millenial Media, InMobi and MobClix. Microsoft says it will be the first real-time bidded mobile ad exchange.
At launch (Windows 7 phones are still not in the market), the mobile ad exchange will be specific to devices running Windows Phone 7. But the company left the door open to other handsets, claiming its mobile Web properties reach 59 percent of iPhone, 45 percent of RIM, and 53 percent of Android users in the U.S.
As evidence of developer interest in its platform, Microsoft says it has measured more than 300,000 downloads of the Windows Phone Developer Tools. The company insists it will not exert pressure on developers to adopt either the SDK or to participate in the mobile exchange.
Real-Time Is the Future
Microsoft intends to catch up in the exchange space by focusing relentlessly on real-time bidding, but it's not alone. At an IAB Mixx event last week, Google executives said real-time transactions on its exchange have more than tripled in the past year. It predicted that by 2015, at least 50 percent of all targeted online display ads will be purchased using real-time platforms.
What's somewhat unique to Microsoft is how decentralized it is. Whereas Right Media and Google have cultivated large branded offerings, Microsoft is content to build partnerships that will plug its exchange into large sources of advertiser demand - regardless of whether ad buyers know their placements are facilitated by Microsoft.
The AppNexus partnership and investment is a big step in this direction.
"The exchange space is broadening quite a bit," said Easterly. "If you look at the way Right Media was positioned in the market four or five years ago, that form of an exchange doesn't exist anymore."
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Until March 2012, Zach Rodgers was managing editor of ClickZ's award-winning coverage of news and trends in digital marketing. He reported on the rise of web companies, data markets, ad technologies, and government Internet policy, among other subjects.
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