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What is this Sea Change?

Posted on Wednesday, Nov 9th 2005

From Good Morning Silicon Valley: Press release actually confidential Microsoft memo.

“The next sea change” in computing — software as a service — has arrived, Gates writes, and Microsoft must embrace it or lose ground to the advertising-supported Internet businesses being developed by Google, Yahoo and [The Memo Itself.]

In the Web 1.0 Dotcom days, a concept had emerged called B-to-B-to-C, as a successor to B-to-B and B-to-C. As consumer marketeers were looking for more efficient ways to reach their consumer audiences, the idea of reaching them through their employers seemed cost-efficient and attractive.

Now, at the height of Web 2.0, Microsoft seems to be in the absolute best spot to capitalize on the B-to-B-to-C advertising opportunity.

Imagine, you are BMW, and you want to advertise to a very targeted audience of consumers with a certain household income level. Who else is in a better position to give you access to this super precisely segmented data about people’s income levels than major corporations?

Let’s say, GE cuts a deal with BMW, and lets them advertise to the 10,000 employees in the annual income range $100,000 – $500,000. What form would this advertising take?

It could be, that for this set of employees, as soon as they open up Microsoft Office or Outlook, BMWs AD is placed on their desktop. As a result, instead of GE paying Microsoft for the corporate license of MS Office, BMW ends up subsidizing the application.

As Microsoft thinks through their response to the Sea Change that Gates discusses above, it would be good to remember that Microsoft is still in a position of strength within the enterprise, large and small, and not try to follow Google blindly into the pure SaaS zone.

Microsoft should re-define the rules of this war, instead of chalking out a blow-by-blow response to Google.

ps. Also, here is Ozzie’s Memo.

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nice take on the memo. i particularly like the idea (because its one i haven’t seen elsewhere) that MS could potentially use its enterprise audience as “advertising blocks”, taking advantage of its existing relationships with enteprises, as opposed to the google more direct to consumer approach. on the other hand, imagine the strains on MS revenues in order to make that transition. its easier to build a new business on top of a relationship with consumers than to try and persuade customers to allow advertising, with what payback – i mean if ads are served to desktops, one can only assume the enterprise in question will no longer want to pay for its desktop software and so on. a very hard yield management question, which would require an incredibly light touch, wonderful diplomacy skills, and a non-confrontational approach to customer relationships. sound like Microsoft? you tell me

james governor Thursday, November 10, 2005 at 7:27 AM PT

These are very good points, James. Let’s have a go at double-clicking down into the implementation:

I would keep Microsoft’s revenue line intact, but make changes in the software plans. In the new system, Microsoft still sells MS Office, etc. as is, or may be with some more integrated architectural view with a better SaaS feel.

However, as you know, Microsoft has discontinued its relationship with Overture as their AD Management system, which means they are developing their own. So, now, I would play to Microsoft’s strengths, and design this system so that a version of it can also be sold to / used by corporations to manage Ads on the desktops of their employees.

So, in this new order, Microsoft continues to get paid for the software they provide to enterprises, but they also sell additional software which adds an Advertising Revenue line to every corporate P&L.

I submit, that Microsoft sits in a uniquely attractive position in the food chain to broker this flow of funds via advertising dollars trickling online, by empowering enterprises to monetize their employees.

And take a cut.

Sramana Mitra Thursday, November 10, 2005 at 2:21 PM PT

If I am GE I would have developed a component which sits within MS Office products which connects to an adv. server I buy from some one and roll the adv depending on various demographic and charge BMW for this. Or I can be a new company who develops this component and have a deal with GE and share the revenue for the adv. with them.

I can use MS for this without paying anything to MS actually.

Santanu Bhattacharya Thursday, November 10, 2005 at 2:28 PM PT

There you go, Santanu! That’s another way to do it.

Bottomline, enterprises should be collecting Ad Revenues, not Google, for serving Ads to their employees’ desktops.

Sramana Mitra Thursday, November 10, 2005 at 2:32 PM PT

nice bottom line. i am sure one that MS would like to see come to pass, anyway…

james governor Friday, November 11, 2005 at 4:01 AM PT