Wednesday, May 09, 2007

Bill Gates: Reading to Go 'Completely Online'

"Heard on the Web" Media Intelligence:
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Media to move to Web, Gates says

By Benjamin J. Romano
Seattle Times technology reporter


Microsoft thinks the advertising business model for traditional media - venues where advertisers still channel most of their spending - will fall apart faster in the coming five years.

Meanwhile, it's positioning itself as a prime location for the kind of interactive, targeted advertising that is defining the Web and other digital media.

Chairman Bill Gates spelled out his vision of the future of media Tuesday, in front of about 1,000 advertising professionals in Seattle for Microsoft's Strategic Account Summit of its top advertising customers.

"We're saying newspapers will go online, and there will be massive innovation that comes out of that," Gates said. "We're saying that TV, the biggest ad market in the world, will completely go online and have the kind of targeting interaction that you only get out on the Web today.

"As dramatic as things happening on the Web are, that's actually what all advertising ... will be in the future."

Gates painted a grim picture of the transition for traditional media.

"I have a lot of friends in the newspaper industry and, of course, this is a tough, wrenching change for them, because the number of people who actually buy, subscribe to the newspaper and read it has started an inexorable decline," he said.

With that decline, Gates said, advertisers are shifting their budgets to new areas.

They will spend about $445.5 billion globally in 2007, according to ZenithOptimedia's most recent quarterly forecast. Of that, online is expected to get 7 percent of the pie compared with newspapers' 28.3 percent.

By 2009, online is forecast to grow to 8.7 percent, while newspapers dip to 27 percent.

Not everyone agrees on the pace of the transition to digital media and the demise of traditional forms.

"The timeline between now and when that happens I think is questionable," said David Cohen, executive vice president at Universal McCann. His agency is an arm of the McCann Worldwide ad agency, which counts Microsoft among its blue-chip clients.

"I know that the newspaper industry is definitely going through an evolution, but ... there's still a tremendous amount of circulation in some of these markets," Cohen said.

Microsoft is developing an array of advertising inventory and media content to connect advertisers with consumers and claim more of the growing online ad market.

The company is also producing the tools and platforms - such as MSN, the Xbox game console, mobile devices and its new online video technology, Silverlight - to create and distribute the ads themselves.

"There are very few companies that have such a wide range of digital assets that you can run messaging across all those platforms," said Cohen, who works with clients including Johnson & Johnson, Intel, Bacardi and the U.S. Army.

He said Microsoft's challenge is to link all of those platforms to give advertisers a comprehensive profile of a consumer - her preferences, what ads she viewed in the last month and which ones she acted on.

"That's the code that they're trying to crack, and if they do, they'll be unmatched," Cohen said.

It makes Microsoft's rivalry with Google for online advertising more interesting, he said.

Google dominates the search-advertising industry by drawing so many more people to its search engine.

"Google is obviously a great, fierce competitor," Cohen said. "They're doing lots of stuff right, but I think you can argue that they don't have nearly the range of assets that a Microsoft brings to the party."

Gates gave other specific examples of old media facing withering competition from new technologies.

He said IPTV, the underlying technology for TV over the Internet, makes traditional broadcasting obsolete, supplanting the model in which one show goes to many viewers who may or may not be interested.

The IPTV model presents opportunities for advertisers to tailor messages to viewers.

"In this environment, the ads will be targeted, not just targeted to the neighborhood level ... but we'll actually know who the viewers of that show are," Gates said.

In a nod to how key the advertising effort is to Microsoft, Gates plans to focus on online services, search and advertising for the remainder of his 15 months working full time at the company. He plans to transition to full-time work at his philanthropy in summer 2008.

In another nod, the company gave each of the summit's attendees a Zune digital music player and a copy of Office 2007.

Bill Gates: Reading to go 'completely online'
Todd Bishop's Microsoft Blog

Bill Gates offered his take on the future of media and advertising during his address this morning at Microsoft's Strategic Account Summit online advertising conference in Seattle. It's not a new subject for the Microsoft chairman, but he went into a considerable amount of detail, more than I can remember him saying on the topic in the past. Some of his comments:

Gates at SAS
Bill Gates speaks in Seattle Tuesday morning. (ANDY ROGERS / SEATTLE P-I)

On the printed page vs. the screen: "Reading is going to go completely online. We believe that as we get the smaller form factor, the screen has gotten good enough. Why is reading online better? It's up to date, you can navigate, you can follow links. The ads in the online reading are completely targeted as opposed to just being run-of-print, where many of the readers will find them completely irrelevant. The ads can be in new and richer formats. In fact the only drawbacks of the digital form are the things associated with the device: how big is it, heavy is it, how many hours of power does it have, how much do I have to spend to buy it? But those are things that once you achieve that threshold, in terms of the convenience and the cost, then you see a dramatic change in behavior. Today, for people who read newspapers and magazines, even the most avid PC user probably still does quite a bit of reading on print. As the device moves down in size and simplicity, that will change, and so somewhere in the next five-year period we'll hit that transition point, and things will be even more dramatic than they are today."

On television: "This is a subject I think about a lot, because it was actually about a little over 10 years ago that Microsoft first got involved in this idea of changing TV from being a simply broadcast medium to being a targeted medium (through its IPTV initiative). ... In order to have this be targeted, you cannot send it over the airwaves. There's just not enough capacity to broadcast thousands and thousands of different video feeds. And that's where the Internet comes in. The Internet is now cheap enough that the idea of having every household in America watching a different video feed has become practical. There's some infrastructure improvement that that implies. Actually, that's very much under way. ... It's a dramatic change in TV. ... Broadcast infrastructure over these next five years will not be viewed as competitive. The end-user experience and the creativity, the new content that will emerge using the capabilities of this environment will be so much dramatically better that broadcast TV will not be competitive. And in this environment, the ads will be targeted, not just targeted to the neighborhood level, but targeted to the viewer. ... We'll actually not just know the household that that viewing is taking place in, we'll actually know who the viewers of that show are, and so it's a very rich environment."

On printed newspapers: "The media itself will be quite, quite different. Who can create this media, who can distribute it? How do you find what you're interested in? I have a lot of friends in the newspaper industry, and of course, this is a tough, wrenching change for them, because the number of people who actually buy, subscribe to the newspaper and read it has started an inexorable decline. In fact, when we look at it by age group, it's quite dramatic how different that is. People have found some combination of TV and the Internet as the way that they can get their news, even the local news that historically was only available in that print form."

On print newspaper advertising: "For many years, even as readership started to go down, the value of print advertising maintained itself, because the dollars per user sort of offset these subscription declines. Now it's getting to the point where people are shifting budgets into the new areas. That's a very tough challenge. It means they need to take a lot of their skills, a lot of their expertise and move it into that Internet world. But it's a very different world, it's not a world where you have a single person who can deliver things like the classified ads. You have many people competing. So it's fascinating to look at job markets within a city, or the nationwide job markets and look to the degree it's new people who have done that well or it's traditional media people who have come in. One thing we can say for sure: It's a far richer experience for the person who wants to list and find that job and far more competitive in terms of the rate of innovation that those things are going to take place. The Internet is like a lot of things -- the only sure winner, with the breakthroughs, are the consumers themselves."

On printed Yellow Pages listings: "The Yellow Pages are going to be used less and less. When you go to this service that's going to take our technology and Tellme technology that we acquired, when you say something like "plumber," the presentation you get will be far better than something you get in the Yellow Pages. After all, we know your location, and so we can cluster around that. We can take the information and show you the names, and you can expand the information easily. These things always take time, but Yellow Page usage among people, say, below 50, will drop to zero -- near zero -- over the next five years."

Posted by Todd Bishop at May 8, 2007 10:20 a.m.

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