Steve Ballmer: Online Marketing Event

Remarks by Microsoft CEO Steve Ballmer
Online Marketing Event
Oct. 2, 2008

STEVE BALLMER: It’s an honor to be here. I want to apologize for being late. We had a perfectly planned, perfectly timed, perfectly busy agenda, and then I let one meeting run late. I apologize very much to everybody. And I certainly appreciate you taking the time and spending it with us today.

I’m sure in our day-to-day interactions with all of you, we’re talking about the here and now, what’s available, where the good demographics are online, what’s going on. I’m going to step way back from that, and talk some about in the longer term, big picture sense, where do I see, really, in a sense information technology playing a transformational role in the world of content, media, and advertising. And then, we’ll have a chance for some discussion.

I think the obvious place to start is with the simple proposition that over time all consumers will be connected digitally all the time. Full Internet connectivity wherever and whenever they want it, might be wired, might be wireless, might be on a three-and-a-half-inch screen that fits in their pocket, or even a two-and-a-half-inch screen. It might be on a big screen like this, which is an interactive surface in the future that lets you interact with the people, the information, the content, the commerce of the world. There will not be anyplace in the world where you won’t have rich broadband connectivity of screens of all shapes and sizes. You’ll have access to all of your information, your preferences, your contacts, your social graph, your world online, one uniform view wherever you go.

And, yes, I know our industry has been talking about this for a long time, but things are really evolving very quickly. The move of the mobile industry from feature phones to smart phones brings a whole new era and opportunity for integration, which is exciting; 3G, 4G networks is another era of excitement; the move even to see more and more wide area mobile data cards coming to PCs is all about making sure connectivity exists in all forms. We announced and are shipping now for our business customers, our industrial customers, a product we call Microsoft Surface. It’s an interactive, touch screen PC if you will, that’s already being used successfully by a number of companies to help provide customer service in marketing in store, and they’re already designs for this next generation style of computer.

In fact, I’ll boldly tell you, based on technology we’ve seen in Japan, that some time in the next five, ten years we’ll actually all own digital screens that are as thin, as light, and as manipulable as a piece of paper. At that point, you really have to ask, why would we do anything with these analog tools that we use today.

In that environment, the obvious thing that will also happen in some senses is, people will spend all of their time, and consume all of their content, and information through an IP network. Today we’re starting to see that transition happen. People spend about 32 hours per week, these are numbers in the U.S., 32 hours a week on Internet; 19 hours TV; radio/music, 7; books, 3; newspapers, 2; direct marketing, 2; magazines, 1; and how much time do people spend on the phone, it varies quite radically, and yet even the phone, of course, we have to think about as a digital content apparatus as we move forward.

So in this world, all content moves to be delivered digitally over IP networks with intelligent software serving it up, and intelligent software receiving it, displaying it and transforming it. This trip in Europe is a milestone for me. This is the first trip where I’ve come where it’s absolutely clear to me that all journalists are now thinking about their world as an integrated multimedia world. I have not done a press interview yet, whether it was with somebody who worked for a newspaper, a TV station, a radio station, they all bring their video cameras now, they all take notes, and they all know at the end of the day they’re really going to create a multimedia experience online that mixes the modalities of video, of pictures, of text in new and interesting ways.

We’ll sit here 10 years from now, and you won’t be able to tell me what’s a magazine, what’s a newspaper, what’s a TV program, because all of these things will be delivered digitally, and they’ll all be, if you will, multimedia. So all content moves online, it changes the way we think about things. Even today, it’s amazing to stop and think and wonder about how differently people react in different media to the experience they have with exactly the same content. My favorite television program these days is a show called “Lost”, and this show called “Lost”, it’s a series, so of course I don’t want to miss one. But, of course, I travel all the time, so I always miss them.

If I’m in town in Seattle, I sit with my sons, we watch the TV program, I see 44 minutes of content, and 16 minutes of advertising. That’s the U.S. standard. Anyway, I missed one last year, and I started watching on Internet. On the Internet, you get 44 minutes of TV program, 2 minutes of advertising, and I found that the 2 minutes of advertising online bothered me much more than the 16 minutes of advertising offline.

I’m not sure what the message is, but it is interesting to think about as all content, all things that we think about as content get delivered, it will change the way we have to think about advertising creative, advertising targeting. One of the questions I ask myself now quite frequently is, if you go out five yeas or ten years where every piece of content, and every piece of communication is digital, in that world will we see more total advertisements, or will we see fewer total advertisements, but each advertisement will be more targeted, more valuable, worth more? I don’t know. I don’t think that has been decided yet. The technology trends are clear, but the user trends and the business model trends are not as clear.

It’s interesting, these days, that if you look at advertising spend, marketing spend, it does not reflect at all where people are spending their time. Internet is very small compared to the total, and yet people are spending a lot of time on Internet. And as these content types merge and change, the notion of having kind of a real expertise in digital advertising creation, in digital marketing becomes more and more important. In addition to all content and communications moving online, it’s also important to think to a future in which it’s impossible to tell the difference between a piece of content, a piece of communications or community, and a commercial transaction.

I’m going to give you my favorite scenario, and then you decide what happened. Was it content, commerce, or community? It’s 10 years from now, I’m watching my favorite golf program on television. I see Tiger Woods, my favorite golfer. He makes a putt. I yell at my TV set, I have a loud voice, so of course I yell. I yell at my TV set, hey, Bill, did you see Tiger make that putt? My TV wakes up, oh, he said Bill, Bill, who does he mean when he says Bill? Bill Gates. Where is Bill Gates? Is Bill available for interruption? For Steve, of course, he’s always available for interruption. Perhaps Bill is sitting in his vacation house. In Bill’s case, he’s probably not watching the golf, perhaps he’s watching the Fineman series, lecture series on physics, that would be more typical for Bill. And all of a sudden he hears my voice, hey, Bill, did you see Tiger make that putt? He clicks a button, instead of physics, he’s immediately looking at Tiger make the putt that I commented on. So Bill says back, Steve, Tiger looks like he’s using a new ball. What golf ball is he playing with? I take my remote, I click, I point at the ball, image search out over the Internet. Ah, it’s the new Nike Elite golf ball. Do you want to buy some? And I say, sure, a dozen for me, and a dozen for my friend Bill, he needs them.

Now, I tell it as kind of a funny little story, but was that content? Was that commerce? Was that community? Was that advertising? It was all of the above. And yet what I’m describing is not some crazy scenario that won’t be possible technologically in that period of time. And so really thinking through how these things come together is important. Even inside Microsoft, sometimes our people chat about whether eBay is really a commerce site, or is eBay really a community site with commerce? And so the mixing of these phenomenon, content, commerce, community, selling, marketing, advertising, in addition to communications, and social network, and this next generation of converged content, I think is very interesting, and probably very important for marketers to really stop and think through. It is certainly clear, as I said, that in the future advertising is going to have to be, marketing is going to have to be more targeted, and more relevant than ever before. Less intrusive, perhaps, more relevant, and more targeted.

One of the things that will be moving, I think, socially, as fast as content is the community aspects. Just think about the things that are changing today, e-mail, IM, social networking, video conferencing, blogs, wikis, tagging, bookmarking, ratings, review, the way in which people will come together and help each other, and talk to one another about commercial decisions is important.

I can’t say I’m expert in this aspect of French life, but I’ll bet it’s true as it is in the United States, if you have a problem at home with your sink, you need to call a plumber. At least in most parts of the world, it’s hard to find out whether the plumbers are any good. I don’t know, maybe all French plumbers are excellent, but it turns out it’s a very low probability in the United States that you find a good plumber. What does that look like in the future? Will that really be a question of more plumbers doing more advertising? Will that be a question of people really coming together online and helping one another find the right service provider for the right given job?

We talk about local search a lot, it’s not just local search, it’s really the whole community that develops around local products, local services, and it’s easy to think about it in the context of a restaurant, or a movie, but you can think about it in the context of a plumber, of a home builder, of a contractor, all of these service things that lend themselves. The way in which customer service gets delivered. Today most customer service still gets delivered in person, or over the phone, but when you really have big screens, cameras, everywhere, it will change the customer service, and community feeling around that.

I said that marketing will need to change to be more interesting, more relevant, and I think that is certainly the case. Every ad is going to have to be designed, just like the content is going to change, so will the advertising change. Will you really do display ads, video ads, text ads, or will we really evolve to a world of a new model of integrated rich media content types for advertising just like we do for the content itself? How do you measure the quality of the ads, how do you do appropriate targeting? The technology is going to permit amazing things. I thin there’s a question that may vary by country, in terms of how much users are willing, and how much governments are willing to let users share their data with marketers. But, the holy grail, or the grand goal, if you will, and I think a direction in which the world will certainly move, is instead of today where you think about buying an audience by experience, I want to be on the football match between, I don’t know, Liverpool and Manchester, I want my ad on that. I didn’t want to pick French teams, it might create too much animosity. So you want to pick a place for your ad, based on who do you think is watching it.

In the case of search, you buy an ad based upon words that you think are relevant. But, over time I’ll know that Eric Boustouller, if he lets me, I’ll know which Web sites he visits, I’ll know that he’s been to the BMW Web site four times interest eh last month, and if I’m a good marketer for Peugeot, I’m going to have an ad in front of him no matter where he goes on the Internet, even if he’s looking for information on plumbers, I’ll still give him a Peugeot ad, because I’ll know he’s in the market, he’s looking to buy a car.

So we’ll see an evolution in the content. We’ll see an evolution in the targeting. Consumer participation, the best ads are the ones that don’t feel like ads, they’re things that feel like experiences in which the consumer wants to participate, contests, communities, games, that all fit in the consumer’s life.

There’s an underlying set of technologies that has to be built to facilitate this change. In some senses we’ll have these big software systems running out in the Internet, that will know a lot about what content people have to offer. It will know a lot about what advertisers are interested in buying. It will know a lot about user behavior, and what users have been doing, and then it will try to get the right users from the publishers to see the right ads from the advertiser, at the right time, and in the right context.

So this big lot of software has to be smart, it’s got to create taxonomy of kinds of user behavior. It’s got to have deep analytics to mine the data, to know what’s important and relevant to marketers. It has to collect lots of data about user behavior. In the context of search, this really exists today. In the context of broader advertising, this is really still developing, but it will be an important area of innovation.

If you think about that platform, it’s got to focus on relevance, it’s got to focus in on generating revenue for publishers, and economizing spend for marketers. It’s got to have both the ability to sell somebody a fixed ad, because you may actually want your ad to run at a given place, at a given time, but it also has to auction off. There’s so much more inventory. Think about the world in which all of these content types emerge. We will literally have millions, and millions, and millions of places on the planet for people to advertise, and really knowing how to do that in an efficient, and effective way.

I think there will be a general trend for the content industry to consolidate, and you’ll have a few big players, and many, many, many, many, many, many, many small players. And it will be increasingly tough for mid-sized content producers to afford overhead versus small guys, or production values versus larger guys.

I’ll just talk about this in the context of the computer industry. When I joined Microsoft everybody read magazines, you read Popular Computing, and then it quickly became PC Magazine, and E-Week, and CNET once things moved online. Today some of the most popular things for people to read about technology are blogs that are literally produced by one or two people as independents. And you’d say, what happened to all of those computer publications that used to be this thick in the ’80s? There’s been a change. It’s not that people are less interested, but there’s been a real change in the content, the marketing, the approach, and the technology really needs to facilitate that kind of change.

A lot of things will change along with it. In business school I was taught that there are five Ps to marketing, promotion, positioning, product, price, and place. I’m sure they’re not all P in French, but it works pretty well for a young business school student in English. And yet every one of these will be affected by the move to Internet marketing. We think about promotion and advertising, but where you sell changes as you sell online. Most products will have to think about the Internet connection and community that you want to build around them, even if they are hard goods there’s a question of how you provide service, how does that affect price, how do you drive positioning in a way that lets you tell a relevant, and interesting, and valuable story. So it’s not just media buying, it’s not just creative, it’s really the whole thought process about marketing will continue to evolve.

In a sense, today’s companies are probably not well equipped for this, even the organization models of today may need to evolve in the sales and marketing disciplines. Today things are somewhat siloed. The people who worry about stores and catalogues, and channel, brand advertising, direct response, and analytics. And yet in the future, as content, commerce, and community blur, analytics, CRM, direct response, and brand, tougher to tell.

One of the research studies that we’ve done in our advertising group is really taking a look at whether people are spending too much money on search advertising. You could say that’s easy for us to say, because we don’t make much of the money on search advertising, but it is interesting. We think actually most marketers give too much weight to search.

If a consumer sees five display ads for a product or a service, and then they finally type into a search engine because they can’t remember the URL, and somebody comes to you basically through the search process, for many marketers search looks like it gets 100 percent of the credit. And really understanding the role, and how to think about measurement of brand-type advertising, search-type advertising, it all says these things need to come together in new and interesting ways.

My only other job in the world, besides being at Microsoft, was as a brand assistant, assistant brand manager, and hopeful brand manager for Proctor and Gamble, about 30 years ago. I can’t tell you I’m a marketing expert, but I can tell you that the things that I learned, and were important, and critical at Proctor and Gamble 30 years ago, they’re not going to be the skills and tactics, and techniques that we all need to know for the next 10, 15, 20 years. It will be our privilege, and honor to work with you, and to learn with you, and to show you kind of what technology permits, and how we can all take advantage of it.

I thank you for your time, and I’ll look forward to the questions.

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