Steve Ballmer and Yusuf Mehdi: MSN Strategic Account Summit

Remarks by Steve Ballmer, CEO, Microsoft Corporation

Yusuf Mehdi, Corporate Vice President, MSN Information Services & Merchant Platform, Microsoft Corporation

MSN Strategic Account Summit

Redmond, Washington

March 16, 2005

STEVE BALLMER: Well, thanks. It’s a real honor and privilege to have a chance to welcome you here today, and to have a chance to kind of kick off this summit.

For me, this is kind of a different year for the Strategic Account Summit for us, because, in a sense, I think over the last couple of years, we’ve really kind of turned a corner inside Microsoft in terms of really building an appreciable and deep appreciation and competence in working with advertisers. We have a lot more to do, a lot more to learn, a lot farther to go. I’m sure you’ll share a lot of that feedback with us both. But there is absolutely no doubt at Microsoft that one of the critical opportunities for us, and best growth opportunities for us over the coming years will be working in partnership with the folks in this room and many others to get messages in front of a very broad audience of Internet users.

MSN has turned the corner for us. It was a business that was, quote, losing money, now it’s a business that makes money, and has just incredible, incredible potential. And that’s really been driven on the back of our ability to help you hook people who have interesting things to say up with people who are doing other things on the Internet. And so I think this has been the year for us of real acceleration in terms of our approach and efforts with advertisers, and really where we’re going and taking the consumer facing side of what we do with MSN.

The summit today is going to talk about advertising, and the theme is mastering the medium. I think Joanne was wise to pick the theme, but I’m going to sell her down the river just a little bit, because I think the medium is going to keep changing. So, in the sense, I agree, it’s not about proving that the medium is important anymore, it is. I see that widely accepted amongst the advertisers that I talk to. The question is, how do you get best value out of the medium today, and tomorrow, and the next year, as the medium continues to evolve and change? New media types, more video, new form factors on which people are watching and viewing and participating in the Internet will continue to change things. Differences and changes in the way people think about privacy and, if you will, intrusiveness coming from advertisers.

Mastering the Medium

Key advertisers I talk to are quite clear, it’s not about jamming the message in front of the user anymore, it’s about in context and in rhythm, and in ways that the user will logically accept having a chance to have the right kind of dialogue with the user, particularly on the Internet where people have been evolving over the last several years, the nature of advertiser interaction with the ultimate end user. So, it’s about mastering the medium, and remastering and keeping on top of the incredible innovation and change that we expect to continue to see in the Internet experience.

As we think out here about the next two, three, four, five years, we continue to see a world in which that which people do on the Internet changes, the devices that people use to access the Internet continue to proliferate and take on various forms. We continue to see change coming in the way video works, standard TV video will move to the Internet, print and print distribution will continue to move towards the Internet; all of this will bring yet additional changes, powerful, valuable changes, but changes not only for this medium but to what we today consider offline medium.

As a company, we’re very committed in investing in the innovations that drive the changes in the Internet experience, that drive changes in the applications and the form factors, but we’re also investing in the integration to allow advertisers and people with something important to say to integrate what they have to say in a logical and intuitive and reasonable, and well-targeted way, with everything else that’s going on, on the Internet. Innovation is a key. People will talk about how great things are today, and how great the experience is. Believe you me, you take anything we do on the Internet today and think about what it will be like, kind of like I said on that video, five or 10 years from now, it will be different. It will be different. Video won’t be some clumsy add-on to the Internet 10 years from now, it will be a natural and intuitive and sort of logical extension to all Web sites, to all applications, to all experiences, just as other hyperlink type experiences will be a natural part of everything that goes on with video.


Search, people say, oh, search is so great. I don’t know about the rest of you, I think we’re sort of 5 percent, 6 percent, 7 percent into the innovation perspective on search. It’s still very hard, actually, to find what you’re looking for on the Internet. It’s better than it’s ever been, and it’s so much less good than what somebody wants, whether they’re looking to buy something, or research a paper, or a disease, or something that’s troubling them, or some opportunity, or some piece of entertainment or music, finding things on the Internet today is still very, very complicated relative to what I think it’s going to look like in five or 10 years.

The way people collaborate will continue to change, and with all of these changes, the advertising medium needs to continue to change. How do we let advertising become more targeted on the Internet, not less? There’s every opportunity for the best medium in the world for targeting to be that which is Internet-based, whether it’s Web sites as we know today, or online magazines, or the future of television as television gets delivered over Internet technology, but we all have to be careful to make sure that the technologies that we apply are also very sensitive and responsible relative to consumer interest around privacy, and their desire to choose, and personalize, and customize their experiences.

They will essentially have unlimited delivery outlets. How will people get hooked up with the content, with the messages, with the experiences that are most valuable? You have a child who has a particular medical condition, how I’ll you find the 10 other people in the world whose children have the same issue, so you can collaborate, communicate, support one another in that? There is so much technology that goes into it, and there is so much technology that goes into making sure that the advertiser gets the right opportunity also to communicate with the user in their interest at exactly the right time.

So, we’re investing in a very committed and serious fashion the R&D dollars that are going to continue to drive the end-user experience, and investing in the R&D that is going to continue to improve advertisers’ ability to have the right kind of dialogue with consumers on the Internet.

Internet Television

I want to spend a minute just taking one example that, if I do even half a decent job of describing today, I think will really wet your whistle for the future. We’ve been investing in something called IPTV, or Internet television, or people have given it different names, we’ve been investing in it for literally 10 years now. Ten years ago, we went out and we started some effort inside Microsoft  actually, 11 years ago, we started some R&D, and about nine years ago we went out and spent $400 million to buy a company called Web TV, and we’ve just been investing, and investing, and telling people that the future is now. All video delivery is going to be over the Internet, traditional cable, traditional broadcast, you know, not that the cable providers will go away, but the technologies will all go away, and these are all going to come as Internet streams of video down to every household.

Clearly we were over-optimistic in how quickly that would happen. And thank goodness we’ve kept at it, because clearly in the last year the view of the world, at least to many of the people, this world has absolutely changed, because of the increasing competition between the telephone companies, the satellite companies. Everybody wants to deliver video, whether it’s SBC or Verizon, Bell South in the , , Deutsche Telecom, France Telecom, each of these guys is saying, I’m going to get into the video delivery business. I’m going to compete to deliver the video content, the TV shows, video on demand, movies on demand that people want.

As new entrants, all of those folks are saying, we’re going to base our video services on Internet technology. It doesn’t mean you’re going to go to a PC, let’s not be silly, you’re not going to go to a PC to watch television with your family. You’re going to have a little set-top box that’s talking over the Internet, that’s capable of hyperlinks and other Internet technologies, and you’ll use it to bring up the guide, to watch a show, to buy a show, but it’s all Internet technology. We’re going to build community and instant messaging into the, if you will, TV viewing experience. We can use the same backends that are used to deliver targeted advertising on the Internet to deliver targeted advertising to somebody who is watching television in what I would otherwise call more traditional ways.

We have one design that will go into trial, and eventual deployment with virtually all major telcos that have so far gotten into this game. In fact, if you asked me the one area of technology where I think we have the most clear leading-edge momentum today, it’s exactly in this one. If you think about it, you say, OK, in the short run as an advertiser it probably doesn’t mean much. But, I think everybody’s seen all the pronouncements between the telcos and the cable companies. These telcos are going to be fairly aggressive about acquiring TV subscribers. They are going to have new advertising options, new advertising packages that build off Internet technology. The whole way, in some senses, in which you even buy what you consider today to be traditional TV media is absolutely going to change over the course of the next probably two to three years, and the technologies that enable that, both on the consumer end, and on the advertiser end, we’re absolutely, here at Microsoft at least, investing in, and have a leading edge position relative to what’s going on in the market.

So we need to make sure that our dialogue with you is a lot about what’s going on in traditional  existing online today, but also talk about how the future of some of these other media will essentially merge with the online type over the course of the next several years. And we look forward to engaging with you in that leading edge dialogue.

Marketing Online

People ask us all the time, hey, you’re out there, you sell online, marketing, you believe in online marketing, you tell the rest of the world to spend a huge percentage of their budget online instead of offline. What do you guys do at Microsoft? Well, Microsoft as a company has, in some senses, hook, line, and sinker bought into us as an online marketer. Somebody asked me the other day, what is the first thing you guys do when you set your ad budget? The first thing I do is to tell people, we must saturate certain kinds of online properties with our advertisers. And that’s the most important thing we’ll do, before we buy any TV, before we buy any print, before we do anything, we have to make sure that we put down a foundation. And if you look at it, the people who use our products happen to all be on computers, that gives us maybe a leg up versus some of you in the audience. But, nonetheless, it’s a base for what we do.

In fact, we find ourselves transforming more and more of what we used to do offline, be it direct mail, be it seminars, be it traditional print, we find more of what we were doing offline we are converting over to the online medium. When we think about our online marketing experience, it’s not just what we spend on other people’s sites, it’s how much investment we put into our own site. is one of the three most visited sites on the Internet,, Yahoo, and MSN. But,, it’s just a thing where if you’re kind of techy maybe you go visit, blah, blah, blah. This doesn’t even count the additional 140-150 million people a year who just get updates from us for Windows. These people actually go and take a look, and visit and use some content. We’re probably spending now close to $150 million a year just on our Web site. More and more of what we do is get somebody to the Web site and have a rich, personalized, online marketing experience right there on our own Web site.

Seminars, seminars have been an important part of our marketing mix for years. We now do far more seminars online than we do offline. It’s a fundamental part of our marketing mix. So in every sense, we are in the process of revamping and transforming our marketing. I’ll tell you that even here there is some reticence to stop doing offline things. So in some senses, I think we’ve accelerated online faster than we’ve slowed down offline.

And one of the things that I think is incumbent upon me as a leader is to try to now get people to detach from some of the things that they’ve been doing in terms of offline marketing. I think, probably as all marketers here in the room know, sometimes it’s uncomfortable to detach from that which has worked, even as you get involved in new things that work. People have a hard time driving through that transition.

MSN and Microsoft

MSN, I get asked a lot, and I talked a little bit about this at the beginning, where does MSN fit at Microsoft? What is it, how important is it? To me, and I have a presentation in front of our board next week, we have our annual retreat, people ask me at that board meeting, what is the No. 1 growth opportunity for Microsoft, and I’ll say it’s Internet services. What we do in MSN. It’s search. It’s what I would call people’s personalized communications and information experience, the ability to author a space, to send an e-mail, to receive an instant message. It’s what we do with content, and how we help people browse and navigate as opposed to just search for what they’re looking for on the Internet.

If you look at where we’ve been just moving massive amounts of the most talented, high-IQ, bright people at Microsoft, it’s into these fundamental consumer services that we deliver on MSN. It’s into search, into instant messaging. It’s into spaces. It’s into our home page, and personalization technologies, and it’s into technologies in terms of our advertising platform, including the new MSN adCenter that we’ll have a chance to announce today, and show you a little bit about at the end of my talk.

Of course, you get this big audience, what do we want to do with that audience? Well, we’d like to sell them things, we’d like them to subscribe to things we have available, but for many of them the best way to sort of complete the experience is to include appropriate advertising and communications from the companies represented in this room. That lets us finish off your business model, it lets you achieve your strategic objective, and it actually gives the consumer a richer and better experience.

I was actually surprised, I did a tour last week in New York, I talked about your advertisers, some folks I see here in the audience today, in fact, were there at various points of the day. And more than any time since we’ve been in the advertising business, advertisers are absolutely saying, I don’t want to invest in experiences that are invasive in a way that the customer is not going to like. Customers change, customers control, customer in charge, so I want to get in front of the user, but you’re going to have to be creative about thinking of ways for what I have to say to that user to be accretive to the experience that they’re in, so the customer enjoys and finds value from what I do, as opposed to, I don’t know, jamming me in a pop-up or whatever the technique of yesteryear was.

And we’re putting as much, as I said earlier, energy into innovation on that front as we are into this unified communications and personal experience, as we are into search. Make no doubt, I’ll say it one time, because I have to say it for sure so you hear it, we are going to drive, and drive, and drive, and drive innovation as far and as fast and as furious as we know how to do in search. We’re in V1, we’ll be in version 2, we’ll be in version 3, we’ll be in version 4, we’ll be in version 5.

We’re a company that’s fairly persistent in what we do. We like to get everything right. We like to be first. We like to be first to get it right.

Consumer Communication

We’re on a roll in terms of what’s going on with consumers. We get over 90 million visitors per month on MSN. We send over 2.5 billion instant messages every day. By far the biggest community of online communicators in the world is the MSN instant messenger installed base. Those of you who live in the United States might get confused about that, those who live outside the United States will not, since there is still a significant presence among younger people in the United States that are not MSN here in the U.S.

I don’t know why, but the people who help me with these speeches decided it was interesting to tell you that we stop over 3 billion pieces of spam per day. I guess that’s also a nice way of telling you that we actually deliver a lot of legitimate mail. And we’re doing a much better job than we’ve ever done before stopping the illegitimate mail, which I think is increasingly important to all marketers. If we want legitimate, good, useful online marketing to be valued and accepted, we really do have to stop the things that users consider intrusion, pop-ups, spam, spam that borders on pornographic, at least in my wife’s perspective. There’s a lot of work we need to do.

We’ve launched in beta this spaces technology, which lets users come together, form a community and blog together, share together, even still in beta we have many, many, now hundreds of thousands of these spaces up. And we think that’s going to be an important new technology type.

MSN video, we work with 10 of the top 25 advertisers, we think we’ve got a real sensible concept there. At MSNBC we’re trying to drive very hard to bring more and more of this video content to bear, and press reports to the contrary, we and General Electric are very committed to what we’re doing together online with MSNBC. And I talked about search and profitability.

MSN adCenter

Today we want to announce a new product, a product designed  a technology designed explicitly for advertisers to interact with our user base initially, our search user base, we call it the MSN adCenter. We’re going to test the technology first in and Singapore. So we don’t have much to say about when it will be available broadly, but we want to make sure we get feedback and know the technologies are good and scalable. It’s an option-based search technology for advertisers from small to large. It will be a way to buy, one stop across everything in MSN, great intelligence, great targeting.

People ask, what does this mean about your relationship with Yahoo and Overture? We still see opportunities to partner there. We’re having discussions. But we think it’s also important that even while we maintain what has been a very good partnership, I think, for both companies, there are places where we have ideas to innovate. So we want to bring you our innovations, and then try to weave that in context with whatever we do with our partners. This is innovation and technology developed here, at Microsoft, from the ground up, which I think should be proof positive of our commitment to apply our innovation to the problems and opportunities that you face as advertisers.

With that, I would like to invite on stage Yusuf Mehdi. Yusuf is the senior vice president of MSN responsible for all of our information and advertising technology, and Yusuf is going to have a chance to show you adCenter.

Yusuf Mehdi.

YUSUF MEHDI: Thanks, Steve. (Applause.)

It’s my pleasure to be here in front of you again this year to talk to you about the innovations we’re putting into MSN to help connect people to the information they care about, and to help people like yourself connect to those individuals to help them with products and services.

Last year’s priority when I talked to you about what we’re doing in MSN was about really addressing customer loyalty on our network. We had a great network. We needed to do a lot of improvements to the service to improve performance, to reduce clutter, to reduce in some cases over-commercialization, and then to add great new services and technology. And we’ve done a lot of that work. In fact, we’ve made some tremendous progress, and I’ll walk you through.

And then the second effort that we’ve done is, we’ve made a lot of investments in the advertising technology to drive forward as well an ability to better solve some of the problems that we see today across a number of fronts, including search engine marketing. So, let’s go ahead and take a look.

I want to use this scenario here, since it’s March Madness tomorrow, we would use that as a scenario to go ahead 


YUSUF MEHDI: Starting tomorrow, the tournament starts tomorrow.

STEVE BALLMER: The 65th team, I think, had to play yesterday. Go ahead, let’s start our search.


STEVE BALLMER: Not that I’m a fan or anything. It was Oakland against Alabama A&M. Go ahead.


STEVE BALLMER: I think Oakland won. But go ahead.

YUSUF MEHDI: All right. That’s the tough part when you’re with the CEO here in the demonstration.

First thing to take a look, when I pull up MSN, for those of you who use it, is, and it didn’t launch here, is that we sped up the performance dramatically. It now loads up to 50 percent faster than before, so a lot of work we’ve done on DHTML. This has improved user engagement. As you can see, there’s a clearer look. We’ve reduced the number of the links that weren’t getting high click through rates, and the net result of just those two things has driven up click through rates, and customer satisfaction has risen up dramatically. That has been fantastic.

In addition, what we’ve done is we’ve made control of the page now very simple. So, I can do something as simple as click in-between blue and white, I’m going to see what you like better, blue or white.

STEVE BALLMER: I’m a white guy.

YUSUF MEHDI: I’m a white guy. How many people like white? A quick informal poll. Blue, let’s take the poll with blue?

OK, and part of what we’ve done here 

STEVE BALLMER: We had over 50 percent blue.

YUSUF MEHDI: We had over 50 percent blue, and we defaulted at blue. And so, one of the things that we’ve done is, we’ve also given some more control. So, let me go ahead and show you some of the things that we’ve done in terms of coming over to the My MSN effort. Here to add RSS capabilities, and as well what we’ve done on the sports site. I shall come back to the My MSN.

On the sports side, let’s use the scenario we talked about here. I’m basically trying to put together my lottery picks for NCAA, and hopefully do a better job on some of the information, so the way to come in and find it is, I’ll come in out here, I’ve got MSN here, is to come in and take a look at what some of the links are on the page. This is the My MSN page.

Now, we had a lot of great content on MSN, but one of the things we’ve heard from customers is, people said, hey, I want to get access to all of the Web. Can you be the best place to marry all the breadth of what’s out there with the high quality content? We’re starting to do that. We’ve added RSS support natively right on the page here for MSN. And most of you may say, gee, RSS sounds like a technical thing to me. You can just come in and type in something like March Madness, and we’ll pull up all of the syndicated feeds around March Madness. I can pick this one here that says, keep me up to date with the most recent articles. And just like that, I’m able to now have a module on my page here that has some of the latest syndicated feeds around information for March Madness. So, we really marry now the best of the Web with the best of information that’s out there, high quality content.

Now, high quality content, we have a partnership here with Fox Sports over the last year, it’s a fantastic partnership. In fact, in the last year, since they’ve come onto the MSN Network and we’ve worked together, we’ve tripled their traffic in less than a year. And, in fact, we’re both pleased to say, during the Super Bowl week, this was the number one site during Super Bowl week in terms of traffic.

There’s a lot of great content here, as you can see, about the March Madness information. There are some of the things about the brackets, and there’s video. Steve was talking a lot about video, there is some great video content that was integrated into our network. There’s an expert pick on what to do and what not to do. And I asked the Fox team to just give us a video for that as part of this demo, so they sent one up. When we see the video here, the first thing you see is an advertisement that comes up for 15 seconds. The great thing is that when the advertisement is done, it moves to the right and it persists while you’re watching the video experience. So, unlike TV, you’ve got a better experience there.

(Video segment.)

I think we’ve seen enough of that video. Fox is having some fun with me. But I’m going to come back with the terrapin. I’m looking bad. This is why we have the service is to help people like me who don’t know much about the NCAA basketball tournament apparently. There’s a lot of other video on the service here, as you can see. We have a huge amount of video from our partner with NBC. And, in fact, we have over 5,000 different content clips, and we continue to add. One of the things we’ve just done is, we’ve done an agreement with Universal Music to get top music videos. And so mainstream bands, for example, like Eminem or 50 Cent, or upcoming bands like Keen, are now on our site. What you’ll see here is that even for a top-rated band, someone like Eminem, when their new video comes out, we get over 2 million streams in a very short period of time of that video, 2 million plays, if you will. That gives you a sense of the magnitude of how people are moving to online to consume content like videos. So, it’s a pretty fantastic experience.

Now, the last thing I want to show you is really investments we’ve made to really deepen our technology around search. Search is a great way, obviously, to find information. In fact, as Steve said, we’re making a huge bet. There’s a lot of work behind it, but I want to focus on two things. Our vision behind search was to go beyond doing simple links, and giving you thousands of links, to trying to get you to the answer you want. There’s a big, tough software problem, it requires a lot of work to do that. I want to show you how we try to do some of that.

First, let me show you just the basics here. I’ll type in NCAA, and you can see we have eight million documents, that speaks to the size of the index. There are a lot of good results here on NCAA. But I want to go further, I want to be able to gain some answers to questions. So, the first thing is, I want to find out what is a terrapin. Now, I want you guys to be honest, how many people know what a terrapin is, put your hand up? OK, so I’m a little embarrassed. So the rest of you honest people, we’ll go ahead and find out. And it turns out that a terrapin is a common name, sometimes used for any freshwater turtle, or more accurately restricted to the diamondback, native to the salt marshes of the Eastern United States. And you can come in and learn more information about the terrapin.

And we have, courtesy of Encarta encyclopedia, over a million-and-a-half factual answers in our database today for all sorts of things, like mathematical formulas, metric conversions, distances, population, Census data, and you’re going to see us add just increasingly every month more and more data. The team really knocked themselves out on March Madness, in fact. And so I can come here now and do a number of interesting things on March Madness. So, let’s say March Madness Round One, because I needed to find out from Steve all of the different games that are playing, and when they are playing. And here are some of the ones that are upcoming. You can see that information. I can see, for example, here we can come in and type in University of Washington Huskies, and at any given time that you come in and type in the name of your team  little typo there, good spell correction  you can see Washington Huskies PAC 10 conference. You can see the rank, how they’ve done in conference, you can see the game, or have live sports scores of that team and what’s going on. So, there’s a pretty impressive amount of data.

We can even ask some more complicated questions. So, for example, you know, let’s say, who had the most rebounds in March Madness? Any guesses? A toughie, but ‘s Fred Cohen grabbed 34 rebounds against Connecticut in ’56. Who had the most points ever in a basketball tourney? Any idea? Tough one, too.

STEVE BALLMER: Who had the most “pants” in March Madness, that’s an interesting question, I’m sure. I didn’t know they kept track.

YUSUF MEHDI: I didn’t either. This search service can do all sorts of things. So, it’s Notre Dame’s Austin Carr, 61 points in a game. So, you get a sense of just the depth of instant answers reporting in to the service. So, that really gives you a good sense of what we’re doing on that side.

But one last thing to show you is desktop search, which is another area where we’re really trying to pioneer. We’ve had desktop search in Windows for quite some time, and we’re really improving it now in this release by putting in the technology that gives you the same sort of sub-second response, and doing something more special, I think, than what’s out there in most products, which is integrated natively with your user experience. So, in the case of Windows, I can be inside of a browser, or I can be inside of Outlook, or in this case I’m just on the Windows desktop, and I can come in and start typing. And we’ve added lots of nice software features like a feature here called Word Wheel that as I start typing we see here list, it starts narrowing down the list of things, and I’m looking for my last year’s tourney picks. Last year’s picks, let’s say, and as you can see that narrows it down pretty much to the one I’m looking for. I click on that, and then it pulls up the actual e-mail and the file. So we can search within the file and the e-mail, and pull up in a .wpdf format that has my bracket. So, as you can see, it wasn’t good picks, so I got off of that page quickly. That’s just a couple of things of what we’ve done on the consumer side.

Now, let’s switch gears and talk about what we’re doing for advertising. Steve introduced really something that we’re incredibly excited about here in MSN, which is our next-generation online ad platform called adCenter. It is very unique in the sense that it is a complete end-to-end system across order entry, billing, reporting, targeting, campaign optimization for running your online advertising. And, in particular, it goes across all forms of online ads. So it does branded display, or it will do branded display, paid search, e-mail targeting, and a number of other types of ad formats that are going to come down the line. And we’re going to have that thing work on a number of devices. So, clearly on the browser on the PC, but it’s also going to work on mobile phones, and it will work, as Steve was talking about, on IPTV. So this next generation platform really is a very robust set of software, what we’ve been doing. And the first deliverable is a paid search service that we’re going to pilot in and Singapore in the next six months.

Let me talk a little bit about the paid search service and what we’re doing there. The vision behind the paid search service, as you all know, is to try and go out and solve common problems for customers, and in particular it’s trying to overcome the labor intensiveness of doing search engine marketing, giving you more control and granularity of how you run your campaign, and then most important, give me more insight to what’s actually going on. In fact, many people today use search-engine marketing to inform their offline campaign because of the data that you can learn from it. We’ve really taken this a step forward with what we’re doing today in our MSN adCenter.

So, let’s go ahead and pull it up and take a look at it. Here’s the login screen, and I’ll come in here, and let me set up the scenario for you, since it’s March Madness again, Steve and I now are running a small little Sporting Goods USA, I’m happy to have Steve on board as the head of sales. And in the service here what we’re going to do, we have a number of campaigns running. So what you see here is, there are a number of campaigns that Steve and I are running, apparel, summer sales event, March Madness. Now, what we want to do is, since it’s March Madness, we want to really juice up our promotion, and Steve is an expert on March Madness, so we wanted to come in and get some more information about running the campaign. So I’m going to walk you through three phases. Pre-sales, when you want to set up the campaign, what you do when you’re going to target the campaign, and then post-sales analysis.

So first let’s go in and do some research. Let’s come in and find  we want to come in and find out some information around basketball. Let’s say we want to buy the keyword basketball. I’ll come in and submit basketball, and what you get up top here is all the keywords and phrases that are recommended. So people who search on basketball also search on things like college basketball, basketball shoes, and NCAA. You see the traffic last month and the traffic this month. That’s pretty much what you get today with most of the services.

We’ve done something that’s pretty unique with our technology. If you come down here below, we’ve actually taken the breadth of information we know about our customers on MSN, through registration data when people sign up for a Hotmail account, or an instant message account, or they customize their homepage. We enrich that data through third-party sources, so that we can overlay wealth index and demographic information, and then we map that to the keywords.

So that when you come down here. you can see that the data now in the keyword for basketball, according to our search queries, and this is data that we actually pulled from our network, believe it or not, it shows that the keyword basketball it tends to be more female than male that is actually searching on that keyword, and you see the demographic range of that age group. Then you see things that are lifestyle-indexed, so for example, we can see for example, a big popular group, the second series leaders, and the description of that marketing target. And then, of course, the wealth index.

We really, because we’re trying to go after, in our business, in sporting goods, we want to sell logo jerseys to people who want to follow their team. So we want to really go after that individual, and we tend to think there’s a lot of people in college hoops, we want to target more in this case for men, it could also be for women. So we want to take a look at some of these other keywords, and we click on NCAA, and it turns out there’s actually more people who are male looking for NCAA than females and go, a-ha, that’s a better keyword. Now you start to see this is a profound change with how you start to do search engine marketing. Instead of going by keywords, and trying to intuit who might want that keyword. You can now go direct to find out who is the audience that you want to reach, and you might say, let me just target the audience, and the demographics, and socio-economic effort, as opposed to keywords, and let that drive your decision. And that’s a big step change on how you want to run search engine marketing.

Then let’s talk about the next phase. The next phase of that process is I want to go ahead and target the campaign, I want to run the campaign in a very rich way. Before I do that I want to add these keywords, let’s say I’m going to add NCAA basketball to the order. And I come in, now I’m going to enter, as you see here my new keywords, I’m going to enter the prices. So, for example, another nice feature we’ve done using, again, our software, is to make a tabular sort of entry, almost like Excel, maybe someday we’ll actually put that kind of technology right into this. And you can see that I can actually assign prices across exact match, phrase match, broad match. You see this ease of use. This is another big step in terms of how you can enter data. It gives you  for the people who work for you, who know how to enter this information in search engines they’re going to be delighted with the productivity of putting that kind of information in there.

There’s a lot of depth in here that I won’t go into, but things on advertising parameters, where if you want to have different prices and different anchor texts for each ad, and test the effectiveness of that, that’s extra functionality that you don’t get today. And then the thing that’s really interesting is on targeting.

Targeted Advertising

There are two types of targeting for you. If you’re a big advertiser, or you’re an ad agency that does millions of keywords, we’re going to give you a lot of access to an API that let’s you do some special things. For example, we could pick search location, because we know the teams that are actually in the tournament, we could say, hey, those people are probably going to be big fans, they’re going to buy sweatshirts, let’s target those cities. We can pick hours of the day and the week. So we could say for example, we want to target weekends, because we think there’s going to be a lot of games, and we want to target early to mid-afternoon, because we think that’s an important time.

In fact, we can say, hey, we want to pick some specific age-genders. So look at what we can do here, we can say, for example, we’re going to serve both genders, but since we want to go after men, we’re going to raise the bid price that we get for a click through from someone who is a man, when they click on a particular ad. So you can change it by demographics, you can change it by age groups. So we can say we want to in particular target 26 to 40 year olds, for example, with this campaign. This is blow away kind of technology for being able to really target the individual and run your campaign.

If you’re a less sophisticated advertiser, our system works as a black box, if you will, today, in the sense that we use a number of different algorithms to tune the campaign for you, so you don’t even have to do this level of targeting if you don’t want to, or don’t have the expertise.

What we’ll do is we’ll use not only bid price to rank the ads, but we’ll also use click-through rate, so that we can determine if the ads are more relevant, because people are clicking in them, and then we go beyond, we believe, what anyone does today, and we use, again, this audience information to determine who is a better converter, because it isn’t any more about clicks, it is about audience connections. And we think that the ability to get the conversation and the ROI is what’s going to drive growth in the online ad business, and improvements overall in your business performance.

The last thing I want to show you is what happens when we finish up, what is the assessment of results. Steve is always keen with us in terms of what we do with MSN to know, how did you do, what did you do, what were the results, you spent a lot of money, Yusuf, what did we really get out of the whole thing. So here now is some really nice reporting that we’re going to do, that shows you, again, across the various campaigns that we’re running, March Madness, spring training promo, the number of impressions, which is a bar chart, and then the slope of the curve, which is the clicks. And we can see how the spend split out, and then we can do things like look at historical trends.

So you can see, for example, that not surprisingly March is a peak time and then it really drops off. We can see how the audience profiles work out, so we can see, for example, again, who actually clicked on our campaign, who converted. Imagine this, after you’re done running a search-engine marketing campaign, you can find out who actually was interested, who did buy your campaign. You may have thought it was a certain demographic, but it turned out to be someone else that actually bought the results.

Then things like keyword performance, which terms did the best, and of course, creative performance, which ads did the best. So it’s a tremendous amount of information, and as I said before, not only will this, I believe, do fantastic good for the work that you want to do on search engine marketing on MSN, it will also go beyond and inform how you even do offline media buys. This type of information, the way that you can reach customers now through online I think is going to drive offline targeting, performance, and information.

So that’s a sneak peek at the technology. As Steve said up front, there’s a lot of work left to be done for us to go to pilot, to get customer feedback, to make sure that this is something that you all want, and that it’s going to work with customers, and we have time to talk with our partners. But, we are optimistic, I would say. We are equally optimistic about how this is a breakthrough and humble about the work that we have to do. And with that, that’s a good summary of some of the things that we’re doing in MSN to really drive forward performance for consumers and for you all. (Applause.)

STEVE BALLMER: Thank you, Yusuf.

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