Advertising to be Large Component in Qwest-Microsoft Pact

Rebounding from its NorthPoint-induced headache, Microsoft on Thursday stuck a deal with Qwest that not only guarantees the Denver-based backbone provider a significant client, but has sizable marketing ramifications for both players.

Redmond, Wash.-based Microsoft had previously offered high-speed access to customers through troubled provider NorthPoint. But following that company’s sale to AT&T — and the subsequent shut-down of most of its subscriber services — MSN’s goal of rolling out premium, broadband services seemed in jeopardy.

Now, Qwest will not only pick up where NorthPoint left off, but Microsoft even stands to beef up its broadband membership by getting access to Qwest’s 500,000 Qwest.net subscribers. Through the the five-year deal, Qwest will shut down Qwest.net — in a cost-cutting move — and offer users the opportunity to transition over to MSN’s ISP services.

Qwest will promote the MSN service to new and existing customers, and will roll MSN into the future marketing of its consumer services to the 12 million homes in its service area. For instance, users won’t just receive a direct mail piece promoting Qwest’s DSL service — they’ll get a mailing from both firms, touting MSN’s broadband service as well.

Likewise, Qwest will receive a significant amount of banner inventory and marketing services in return. The company will be promoted on MSN’s broadband content sections and in its MSN Internet Access area as a preferred provider. Qwest will also receive banner inventory on other Microsoft-owned Web properties, including Slate.com, MSNBC, MSN Music, Zone.com and Microsoft bCentral.

“With a company like Qwest, we’re going after two target audiences, consumers and businesses,” said MSN Lead Marketing Manager Mike Siegenthaler. “So with their marketing efforts, we put together a package reaching consumers but also promoting Qwest on … bCentral.”

The $100 million also covers customer research through MSN using custom surveys. Siegenthaler said the surveys would be designed with an eye toward figuring out what consumers want from broadband, and what it would take to get them to trade up — ultimately benefiting both MSN as an ISP, and Qwest as an infrastructure provider.

Advertising plays another important role in the agreement, beyond a simple banner transaction. With Qwest saying it hopes to have “millions” signed up for the MSN service over its lines, Microsoft hopes to woo advertisers with new, lucrative products that focus on broadband subscribers exclusively.

For instance, by increasing its high-speed subscriber base, MSN should be able to sell more rich-media inventory — which is ideally suited to the broadband’s greater bandwidth, and which typically attracts a higher CPM rate.

Siegenthaler said the buy would include MSN enRiched rich media ads in both banners and in new Interactive Advertising Bureau-sponsored sizes.

Additionally, Siegenthaler said MSN would debut six, custom-format “Next Generation Advertising Products” based on Microsoft’s enRiched ad technology. He declined to discuss the new format in detail, saying that the work is still being discussed, but suggested that those new ads would be specifically targeted to broadband users.

“With their broadband expertise, combined with our technology and codewriting expertise, we can really work with [Qwest] on moving the needle on brand impact,” Siegenthaler said.

Furthermore, as Microsoft chief exec Steve Ballmer pointed out during a conference call with journalists Thursday morning, the arrangement with Qwest to jointly encourage broadband adoption ultimately stands to encourage the “positive experience” behind the software giant’s .NET initiative.

“.NET is all about letting people and applications and businesses integrate more tightly over the Internet,” Ballmer said. “If you’re always waiting … for the information to come down over the computer line, that’s not as good an experience as we think customers want and deserve.”

“This is fundamental to the kind of experience we want people be able to get… the broadband experience we want to be able to get with .NET, wherever there are, and whatever they are doing in the world,” he said. “So it’s a pretty fundamental piece [of .NET] to see people connected at broadband speeds.”