ANNOUNCER: Ladies and gentlemen, please welcome Microsoft Senior Vice President, Central Marketing Group, Mich Mathews.

MICH MATHEWS: Well, good morning to you all. Joanne asked me to come and talk to you today about life as a marketer, and I must say it’s a pretty fascinating point in history to be leading marketing at Microsoft, and I think that’s largely because the company is sitting at a unique vantage point in this changing digital world. So, let me give you a bit of a backdrop, why am I saying that?

Well, first, the company is an operator of networks. We have a range of digital media properties such as Microsoft.com, MSN, IPTV, Live, that reach over 500 million individuals each month. So for context there, that’s more people than watch “Grey’s Anatomy” during an entire season. So through these properties we’re gleaning insights into how people are consuming, and how they’re interacting with media.

Second, we sell to hundreds of millions of diverse customers across the globe, from business decision makers to the most technical developers, to teens at college, and I would imagine very likely your parents we’re selling to. So we’re a very active marketer, and we’re always trying to find new ways to get closer to our customers, and like many of you just make those marketing dollars work so much harder for us.

And then, third, we’re creating many of those new technologies that are the catalyst for this changing world that we’ve been talking about for the last few days. We’re creating collaboration and communication tools that are transforming the way that people access, consume, create media from next generation mail and messaging to advanced browsing, to local search, matching, social networking, and then of course that topic that everyone is talking about search. We’re also playing a role in enabling customers and companies to interact with their own customers and employees through the digital marketing platform we sell, and the tools. And you saw a glimpse of that yesterday with the Silverlight demo.

And then last, but not least, on top of all this, we’ve got many companies around the world who are using our software to track their own marketing campaigns, to digitally evaluate their performance, and how their dollars are working for them.

So sitting in the intersection of these three things really does give us a multi-dimensional view. And I don’t stand here today saying, hey, we’ve got it all figured out, but I do firmly believe that the most powerful and exciting change to digital is the way that it’s transforming our relationships with our customers, and it’s enabling them to participate in our brands in entirely new ways.

So this transformation changes everything for us, because it means in a world of connected digital experiences, it is no longer enough just to deliver messages to this captive audience. In this participation era, customers have become both seekers and providers. This is a very powerful notion because it can have a massive multiplier effect on marketing dollars. So let me explain what I mean by this notion of seekers and providers. Seekers come to a destination to embark on a search if they’re seeking information on something that they’re curious about or interested in. And the primary goal with seekers is to get them through that funnel as efficiently as possible by serving up relevant information, content, and offers. And a secondary goal with seekers is to turn them into satisfied customers to further engage them, and offer experiences that inspire them to participate in your brand, community, and eventually become advocates themselves.

Now the fabulous richness of digital easily allows customers to share information with each other by forwarding a link, a clip, they can review a product, post an opinion, start a discussion, or even build content themselves. What happens when they start doing this is, they immediate morph into providers. They could be doing anything from giving feedback on what they think of your product or company, amplifying and building on your message, or in a growing category that we’re seeing time and time again abusing your message and your content.

So one way to think about the power of providers is the purchase reach of company and agency generating marcom will really only be a fraction of the ultimate reach. The ideal campaign may get two times, four times, even ten times more of that reach via pass along and remixing.

Now to illustrate the notion of providers, what I wanted to run here is share with you first the spot that we did for Gears of War, an Xbox game.

[Video segment]

So with this spot, we set out to reach eight to 10 of our core gamer target by using traditional TV and cinema. So what happened is, with the spot we achieved something quite different, an unanticipated and unparalleled level of consumer engagement. We got more than 700 community-created mashups that are being posted on YouTube that have now been viewed over a million times. So what we did is, we’ve taken a sampling of some of those mashups, and done our own mashup ourselves. I’d like to show you that now.

[Video segment]

This type of passionate engagement with the brand we think helped make Gears of War the No. 1-selling videogame last holiday season and, indeed, has helped to make it the fastest selling videogame of all time. Now, one dirty little secret here that I have to confess, we didn’t create this ad for this kind of customer-generated content, and I have to say, though, it’s something certainly now that we factor in when we’re going through that creative process.

Case in point, Xbox launched a contest just a couple of weeks ago for their customers to create their own TV show for the Xbox Live Media Center. The winner of that contest gets $100,000 budget and a commitment for six episodes on the Xbox Live Marketplace. And that has an audience of about 6 million people. So it’s no small thing that someone’s content is in front of. And in addition, that spot will also be shown at the annual New York TV festival that takes place in September.

So when you take a step back from all this and reflect where we’ve come from, it’s a massive shift. And as we’re used to clients and agencies working together to produce content for customers to consume, now instead of a few thousand creative and media directors around the globe there’s tens of millions. So that means for all of us in the room our jobs have fundamentally changed. Everything from creative concepts, creative execution, media selections, now must allow, it’s got to enable, it’s going to inspire providers to pass along and repackage this content.

Architecting campaigns this way is one of the interesting challenges that we’re finding in this participation era. Communities, they’re another very, very powerful tool for inspiring participation, and are now a central component to our overall marketing strategy. We’ve got 260 million people, for example, who are coming to Microsoft.com every month, and what we’re doing is trying to connect those people. There’s over 2,000 newsgroups, over 100 communities and forums around the world, reaching like-minded audiences from software developers, to information workers, to college students, to parents.

Bill talked about Channel 9 yesterday, which is one of my favorite examples of community. Why do I say that? It’s my favorite, because it’s essentially  it’s a channel for an ongoing dialogue, two-way dialogue between us and one of our most important audiences to the company.

Now, the founders of Channel 9 will actually tell you this is not marketing, this is just a place where developers could connect with people and kind of build technologies. But, you look at this and what they’ve actually done has the very best elements of marketing, because they’re talking directly to a group of people who have opted to participate, and through webcasts, podcasts, forums, wikis, Channel 9 is enabling us to connect very precisely to 3 million people every month. And this is highly efficient, as we know our efforts are landing, there’s no wastage, there’s no audience overlap. So the bigger idea here is that we are getting a much deeper conversation with developers in that kind of two-way exchange, who in turn are providing us with really important feedback on our products and what they think.

So with these communities and forums we’re also providing a platform for customers to have conversations at actually one another. So instead of them just having this two-way dialogue with Microsoft, they can have this multi-way dialogue with each other in the context that they choose. An example of this is, we’ve embedded community within our Dynamics CRM product. You will see this in more of our products, where accountants or even CFOs can click on that product, and it’s going to immediately take them to a community where there’s like-minded people. Another example is Office Live Online. That’s a community where we’ve got over 300,000 small businesses all giving one another tips, and feedback on how they optimize their Web site, for example.

So as we work to connect speakers and providers, we also have the opportunity to create new kinds of experiences that are going to deepen that customer engagement. Now, in the old world it was about reach, and TRPs and what’s your ability to maximize exposure to your message. But what we’re seeing today is that interaction is even more valuable than exposure, and that it’s critically important, therefore, to be able to provide experiences that ultimately are going to encourage that participation in your brand. It’s these experiences that can rapidly shorten the path in that funnel from awareness all the way down to action.

One way we’ve been trying to shorten that path is to embed product experiences, actually, into online media. For example, we know that most people who use Office, our productivity suite of applications, feel that the version that they’re using today, hey, it works just fine for their purposes. That means that they need to experience the new version before they want to upgrade. And to make these experiences easily accessible, we created display ads that immediately let you trial the feature of the products, like your seeing here on the screen with the Office Group.

Now, we took this idea a step further just a few weeks ago when customers on MSN.com experienced a unique test drive of the Ribbon, and live preview functionality. MSN.com appeared to be a document in Microsoft Office Word 2007, giving users the ability to preview and change the font style of the MSN navigation bar, as well as the picture style that you see there on the Office ad on the page.

So we got over 33 million customers who viewed that home page on MSN, and generated 42 million interactions with it, on the font and photo functionality. Of course, we were inviting customers there to find out more about Office, download the free trial version, or even buy the product. And I have to say, in one day this tactic has driven more than 60 percent of the total experiences on that Office 2007 Web site than when the campaign broke.

As the panel yesterday discussed, people are driven to get engaged in topics they feel very personally passionate about. So another path that we’ve been exploring is this thing called cause-related engagement. We’re using better technology in our communication services to help people speak up for social causes that they care about. What you’re seeing here, is a new initiative from Windows Live. We start a conversation using IM, Microsoft shares a portion of the program’s advertising revenue with some of the world’s most effective organizations that are dedicated to social causes.

With every instant message, customers help address the issues that they’re feeling most passionate about. It could be poverty, child protection, disease, environmental issues. All you have to do here is sign up and start an instant message conversation, then every ad you see in your message window contributes to the grand total that we’re going to send to the cause. This program is really inspiring people to get involved and make a difference.

Now, even though the campaign to date has largely been un-media, it’s already gone as great pass-along, which illustrates the power of mixing great content with a compelling cause. And in the first months we’ve had hundreds of thousands of new sign ups to Messenger and an increase in page views per user, which, of course, is great for our advertisers, and even greater news for those charities who are involved.

Another area that we’ve been experimenting is with sites where exposure and experience are the very same thing. Now, Ms. Dewey is an interesting example of this, because it’s an experiential site that features a very chatty and very attractive interactive search assistant. So this is Ms. Dewey, and you can see her patiently waiting for us to type something. So we’ll type in something timely for this weekend, great Mother’s Day gifts, and let’s see what she comes up with.

MS. DEWEY: It’s not easy to find someone who will love you for you. And I did mean specifically you.

MICH MATHEWS: As you can see here, you get the search results, but you also get it with a little attitude. And we put this out there, and this site attracted 10 million engagements in 10 weeks, but it was all passed along. There was no demand generation, no awareness behind it. And it was a really powerful tool for us to get people to start to think differently about search experiences.

So another major shift of this era is actually the customer being able to influence how they get marketed to, and what vehicles he customer prefers, to enable the customer self customization. In some senses, this is analogous to how people are managing their music. You know, you pick the songs you want, rather than buying an entire CD, and you put them in your mix, and you listen to it when and where you want. But, we’re beginning to see the same thing happen in marketing, where customers are exercising a similar influence over how we market to them, and actually self-customizing what they want to see from us.

So with digital we can learn what resonates with individuals, and then tilt the mix, let’s say, to more e-mail and fewer ads, if that’s what someone prefers, or on-demand video-casts instead of e-mails if that’s more effective for them, and so on. This also presents us with huge personalization opportunities across those networks I mentioned, so that one person’s MSN, or their Xbox, or their Live.com, or Microsoft.com, won’t look like the next person’s. Instead, it’s going to be tailored very personally to what he or she is most interested in, and what the customer wants to see. The customer, Microsoft, and our advertisers actually all win with this approach, because the customer is getting marketing in the way that actually best suits them. And we eliminate ineffective marketing vehicles as the customers are opting in for what they want.

Now, one way we’re testing customized experiences is this thing called gadgets. Now, gadgets are easy to use mini-programs that give you information at a glance, like news, weather, traffic maps, provide easy access to frequently used tools. Now, gadgets live on Windows Vista desktops, Windows Live Spaces, Live.com, homepages.

We’re running a trial right now of a Windows Mobile traveler’s gadget that lets people customize their destination and check weather, and flight status. The gadget locates Wi-Fi spots, restaurants, entertainment and other useful information that people on the go can view, or on their phones. Now, here wouldn’t it be great if you all had this gadget right now. I mean, you could be looking at the things you’re interested, or what you want to do tonight, instead of listening to me.

The important thing here, though, is this is built on an ad-supported model. So advertisers have the chance to sponsor relevant, local content that updates every 20 minutes for this persistent touch point with customers. So we believe this is an emerging marketing medium that branded gadgets will be an effective way to drive engagement on a daily basis. So this integration of customized content and media is the kind of fresh thinking that we’d love to partner with this room on. And as we have some of the top digital marketers here today, at Microsoft the Digital Solutions team, Gayle Troberman’s team , (David Grubb’s Emerging Media team, we’re all looking for valuable partners who can create these value-added experiences and deliver those rich media opportunities.

With all of the new media, new ways for customers to engage with our brand, the question is, well, how do we know what’s going to be effective? The answer is, we don’t know all the time, but increased risk-taking is another hallmark of what we’re seeing, and, indeed, trying ourselves. So we tried it six different new media ideas this year alone in our [Windows] Vista campaign, and we were able to do this because digital means that the price of entry to innovation is so much lower, so we can afford more trials in more market segments in more geographies. And response to the work we’re doing real-time, so you can optimize on the fly. I have to say, also, it is hugely beneficial having the asset of Microsoft.com to pilot and test things overnight, and then get that immediate feedback. And, lastly, the technology we’re talking about here makes it very quantifiable, so you have the hard core facts to support the decisions that you’re making about your mix.

The last seven months or so, we’ve been running this program that’s enabling us to test new forms of digital media in a very deliberate way. We’ve taken 3 percent of our core ads at the company and set up this emerging media fund to undertake a dozen different media trials. Each one is about exploring viability and efficacy of new media opportunities, and the results and trials are absolutely helping us reshape our global marketing mix at the company.

So we’ve taken a global approach to take on the knowledge that digital consumption and implementation still is varied around the world. Since we ran campaigns in varied markets in the world, it’s essential that we have media strategy methods for every one of our markets. The map you’re seeing here shows some of the titles we’ve run in various geographies to aid our global mix matching. We’re testing technologies developed both in house and by partners from IPTV and mobile trials in Europe, to interactive out of home displays, and digital communi-trials that we’re doing in Asia, to satellite radio, RSS, and multimedia presentation technologies here in the U.S. And we believe we stand to learn as much form these trials that absolutely fail as the ones that succeed. And based on what we’ve learned so far from our investments and experiments, we’ve been steadily shifting our media mix more and more towards digital.

An example of this, we took advantage of streaming video to talk about the value proposition of Windows Mobile devices. In these 15 second spots that I want to show you here, we meet Frank, we called him Frank, he’s an unstoppable and unflappable business power user who continues to work despite all these unusual circumstances that the guy finds himself in.

[Video segment]

The outtakes on these are actually as funny or even funnier than this. And though we produce these at a comparatively low cost, we placed them back on the Web in November. One of these spots made the Ad Critics Top-Five List the week after the Super Bowl, so alongside a lot of much more expensive TV ads. So it does show you that low cost production can garner as much attention as this more costly traditional approaches. The other thing here, though, this illustrates is the evergreen nature of digital shorts. I mean, we put this out in November, and they have a longer shelf life given this pass along effects that happens, which means fundamentally your marketing dollars continue to stretch much further.

We also know it’s important to continue to invest in more traditional vehicles, even as we expand the opportunities to reach audiences through digital. There are times, places, and audience where a TV spot, a print ad, out of home is going to be the best choice. One of our target audiences, an important audience to us, is the business decision maker, so live sports on TV, the new episode of “24,” The Wall Street Journal, an airport terminal will always continue to be great ways that we can reach these people.

What I wanted to show you here is, this is Terminal 9 at JFK, where every domestic passenger passes through on their way to baggage claim. The mix of the traditional and out of home, and digital technology makes what we’ve done here, I think, a pretty hard thing to miss.

[Video segment]

So we’re certainly not abandoning traditional media, but even in traditional outlets, we want to give customers an experience that showcases our products, and new digital technologies allow us to do precisely that. Digital is enabling us to reinvent traditional media in case with some new types of out of home. This is a little bit, what I’m showing you here on the more playful side, where we used super-imposed digital images on the Bellagio Fountain, the Brandenburg Gate, and other landmarks throughout the world. These images drop clues for a viral game called Vanishing Point, and the point here of the game was to generate online community participation. You solved a series of puzzles, and the result was over 100,000 registered players trying to solve these clues, which helped fundamentally launch Vista, and create great buzz for it.

So these blends of traditional and digital will continue to be important as we learn what captures the imagination and stimulates that interaction with our audience. And as experience and engagement become increasingly important, agency and vendor roles are rapidly blurring the lines between traditional advertising, relationship marketing, and public relations. As reach becomes referral, and awareness becomes advocacy, I firmly believe agencies and marketers have to adjust. So similar to Howard’s sensibility yesterday, my hope is that the agency of the future is going to integrate all of these capabilities for the client, and we’re going to be much broader thinking that isn’t constrained by agency responsibility and boundaries.

Likewise, our marketers need to be able to orchestrate the chess pieces, and the moving pieces of an integration campaign like this, and create that holistic experience for the communities, and for customers.

So because of that, we’re reshaping our approach to Marcom at the company. We have a major focus on ensuring that those networks that I spoke about earlier are at the very center of how any campaign gets constructed. It was really interesting to see Howard yesterday, as we have our own version of that that we’ve called 360 Tunes. What happens is, we have media, PR, advertising buzz, our own community and events, but all at the table at the very start of any campaign to blue-sky what tactics we need to do with just the goal of satisfying speakers and inspiring providers.

To sum up, I’m personally super energized about the participation era that we’re living in right now. We have incredible new tools to work with, social networks, user generated content, search, company syndication, published content, blogs, webcasts, podcasts, all of these are providing a level of engagement and measurement that I feel we just simply have never had before.

Even with the pace of learning, even how fast we’re trying new things, changing how we work, pushing the boundaries, if you fast-forward for the next couple of years, it’s going to be absolutely mind-blowing to imagine what this future digital marketing platform is going to enable us, all of us, to do. I think it’s going to be a different world of customer relationships, there will be new depths of customer involvement in our product development, in personalization, in marketing, and in our communities.

So, frankly, from where I’m sitting, that sounds like a very inspirational thing. Thanks for your time. (Applause.)