Microsoft Completes Deal to Buy Ad Firm
Friday, May 5, 2006
Microsoft Corp. said yesterday it agreed to buy Massive Inc., a closely held seller of video game advertisements, to gain early entry into a fast-growing ad market.
Massive places ads on soft-drink cans, pizza boxes and billboards that appear in video games. The New York-based company has agreements with more than 30 game publishers, including THQ Inc. and Konami Corp., and has run campaigns for Nokia Oyj and Time Warner Inc.'s Warner Bros. The deal was announced by Robbie Bach, president of Microsoft's entertainment division. Terms were not disclosed.
Microsoft, the world's largest software maker, is trying to boost the percentage of revenue it gets from advertising by expanding from Web site ads to spots on mobile phones and video games. The U.S. market for ads in video games may increase to $732 million by 2010, from $56 million last year, said Mike Goodman, an analyst at Yankee Group Research Inc. in Boston.
"It was a question of when, not if, Microsoft got into the in-game advertising market," Goodman said.
Microsoft also released its new Internet advertising system, called AdCenter, which will also provide ads for Microsoft's other products, including video games. Massive's technology will be added to AdCenter, Bach said.
Separately, chief executive Steven A. Ballmer outlined Microsoft's plan to increase investments in its MSN and online businesses to $1.6 billion next year as it escalates a battle with Google Inc.
Capital spending and research outlays will rise 60 percent in the 12 months that start July 1, from a projected $1 billion this year, Ballmer said in a speech to advertisers at the company's Redmond, Wash., headquarters.
"It's important for you to understand our deep commitment," Ballmer said. "Only two to three companies can really deliver the infrastructure that's required to keep pace with consumer demand and advertisers' needs."
Microsoft is investing in advertising and search technology, and is building computer centers to host the services it offers in a bid to catch Mountain View, Calif.-based Google, which dominates the search market. Microsoft, the world's largest software maker, is having difficulty matching Google's rapid product development and customer appeal.
The boost in MSN capital spending to $500 million represents an increase of 67 percent over the current fiscal year.
MSN research and development spending will rise 57 percent, to $1.1 billion, over the current year. Ballmer said he has told the research team that software delivered as a service should be its top priority.
Microsoft shares last week had their biggest drop in more than five years after the company said profit next year will fall short so it can increase spending by more than $2 billion in areas such as MSN.
Shares of Microsoft rose 27 cents, to $23.44, yesterday on the Nasdaq Stock Market. They have declined 10 percent this year.