Microsoft® reported results for its Bing search engine and its online advertising business during its Q3 2014 earnings conference call. Mr. Satya Nadella, CEO, noted “We saw continued improvement in search, with our U.S. search share growing to 18.6%, and search revenue increasing by 38%.” Ms. Amy Hood, CFO, added “Display [ad] revenue from portal and email declined, while we saw ad revenue growth in products like Skype and XBOX.” (Quoted from a transcript of Microsoft’s F3Q 2014 Results webcast. The transcript can be found on the Seeking Alpha web site).
Readers should closely consider Ms. Hood’s comment, especially in light of a similar shift to a focus on App advertising opportunities, which Google reported in its latest quarterly earnings report, and an outright drop in Amazon’s Media sales, as reported in their latest earnings report.
Is it fair to say Microsoft is in a leadership position as the shift to App advertising spreads across the online advertising market? Perhaps the sales revenues, when compared to Google, or Amazon, are comparatively insignificant. But, in my opinion, Microsoft has an important advantage: MSN never went away. Any owner of a Surface 2, or Windows Phone device joins an MSN-like audience whenever they’re using the device. Bing News, and, indeed, 3rd party Apps from prominent content providers (including The New York Times, WSJ, and other publications). Ad placement within these features of the Surface 2, or Windows Phone “experience” may be more appealing. At least it’s safe to say, per Ms. Hood’s comments, revenue is growing for this type of online advertising.
The significance of Microsoft becoming a force in this market is, perhaps, more important for its competitors than Microsoft, itself. The online advertising market is a hotly contested space, unlike the market for cloud, IaaS offers. It is worth noting Mr. Nadella’s remark about the latter (he called it something of a “boom town” with “plenty of room”) for its consistency with similar remarks made about the same market made by Mr. Nikesh Arora during Google’s most recent earnings report.
But, as I’ve published recently to this blog, the combined market cap of the major contenders for the online advertising market (Microsoft is not included in this group, at least not yet), grossly exceeds PwC’s published forecast of the total global online advertising market for 2017. Competition is fierce for this business.
Disclaimer: I’m long Microsoft and have no current position in Google or Amazon
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