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At Industry Preview 2016, Rik Van Der Kooi shares his views on what year 2016 holds for Microsoft in the marketing and advertising space. He shares the strategic partnerships of Microsoft and how the opportunties unfold in the search advertising space. Moderated by John Ebbert, Executive Editor & CEO AdExchanger here’s the transcript of his fireside chat with Rik Van Der Kooi, Corporate Vice President, Search Advertising, Microsoft.

You can view the video of the discussion here.

John: Good to see you.  Good morning.

Rik: Good to see you too!

John: Nice to have you here.  What are you upto these days?  What are you in-charge of over there?  Your title is adjusted a bit, since last I saw you.

John: Yeah, thanks, and thanks for having me today at the Conference.  It’s great to have an opportunity to share a few thoughts with everybody.  I run the advertising business at Microsoft, so it covers Search and Display Advertising from the product to the marketing to the sales activity.

John: Yeah, great. I mean, this is a natural segways.  We discussed Microsoft advertising.  what’s going on there today?  There was certainly a push three, five years ago. Feels like things have changed. Can you talk a little bit about today’s strategy and even ahead in 2016?

Rik: Yeah, I’m happy to!

John: Actually, you can start like “What is Microsoft advertising?” today.

Rik: Okay.  Let me start there. I would say Microsoft advertising is probably more important to Microsoft than ever before and the simplest way to illustrate that is just by looking at how our consumer business model is changing, yeah, where in the past, we had a business model that was built in many ways around licensing and it’s now shifting to other forms of monetization, and advertising is a key form of monetization inside of sort of that total portfolio. When I talk about advertising, I talk both about display and about search.

On the display side, we have decided to execute our display strategy through two partnerships with AOL and AppNexus globally and I’m happy to talk a little more about those partnerships.  And then on the search side, we have really deepened our investment.  We took back ‘Search Selling’ that we previously partnered on.  We invested significantly deeper into the platform.  We added additional partners and so there we are, an end-to-end player.  On the display side, it was sort of a decision that made sense for us, it made sense for our partners, it made sense for our customers, who are now taking advantage of greater reach across, you know, a broader set of properties both from us and from AOL and the ability to reach them through AppNexus.  

John:  Let me drill into that a little bit, in terms of AdTech strategy may be or more broadly MarketingTech strategy and God knows, there is lots of products over there, over at Microsoft, beyond sort of the AdSpace, but is…I mean, from what you’ve just said, is the AdTech strategy now all about partners?  Of course there have been some monster acquisitions in the past by Microsoft, like are you out of the acquisition game and may be owning the tech?  It’s more about partnering, atleast may be in the AdTech side, and feel free to move into the MarketingTech role too?

Rik: Yeah, I would say…let me start with the DisplayTech we’ve decided to partner on, so there, we operate largely as a publisher.  I might say a publisher with many different kinds of assets all the way from an app. store to, you know, consumer service like MSN to Skype, X-Box, all of those, but there we have decided to partner.  On search, we are, you know, providing a full-end tech platform, that delivers not only for us as a publisher, but also, you know, provides network capabilities for all of our partners that operates on Bing Ads as a platform.  So there we operate the platform and we continue to develop and expand on that platform.  

John: Great.

Rik: And then there is in the marketing tech.  On the MarketingTech side, there is a lot of different components or even the Stack that we tend to refer to inside of Microsoft, all the way from Azure as the Operating System in the Cloud, SQL in the Cloud, CRM Online, ERP and then with the visualization tools of Power BI etc. So there you could say we offer an end-to-end marketing tech stack.

John: Great.  You know, let’s go back to search a little bit and it’s great having search as a discussion point in this.  Obviously it’s a huge business and part of this marketing landscape. You know, the naive reporter guy and he goes like, “How much more innovation can happen in search?  Is it just….I don’t know, is it just about marketing budget right now?  I’m trying to grab a little bit more share from Google.”  What’s more to do with search?

Rik: Yeah.  Great question. There is a lot more to do and for us, if there is one thing that I would like to leave the audience with is, that it is that we are all in on search.  We have made a significant investment in search over the years.  When we started like seriously investing in search and I will say seven years ago, when we started with Bing, we had 7% share in the US and every business has a sort of minimum viable scale idea, concept underlying it, and when we thought about what that meant in search, we knew that for the kind of investment required to run a search business, you need to be able to find your way up to 20% owned and operated share.  

Now, in the US, we’re a 21% share and with the Yahoo share and AOL and other partners, we’ve roughly served one-in-three queries in the US market.  So we’ve sort of crossed the threshold, and after years of investing deeply, it’s now become, you know, a pretty important and lucrative opportunity for us, with an intent to grow it significantly more.  So what does it mean for us, when I say that we’re all in?  It means that we’ll continue to invest in the platform globally and we’ll start putting Bing into more and more applications, beginning with our own applications like bringing it into Office, bringing it potentially into, you know, Skype and other services, where essentially by putting Bing inside, it makes the application more intelligent, makes it more helpful to the consumer or to the person using the application. But you could also imagine that we would look to do that through the APIs and offer that up to third-party applications, if they want to take advantage, you know, of the Bing intelligence.

John: Okay.

Rik: So there is innovation that we’re thinking of in those areas, but even in search, just as we know it today, I would say the innovation that we’re going to see in the next five years, is going to out-perform what we have seen in the last ten, by some margin.  Yeah, there is a lot of changes happening, not just like a shift to mobile, but search happening in different places rather than just on the search results page.  We’ve actions, we have buying directly on a search results page or through ‘Buy’ buttons.  There is a lot of innovation that is coming and we plan to play deeply into those areas.

John: Great.  And actually this is a nice segway into may be mobile and search advertising is a big part of mobile strategy for Google.  For example, may be…let’s kind of move on to the mobile question, how you guys are addressing mobile and advertising, advertising and marketing.  I would think it starts with search.  Can you expand on that?

Rik: Yeah, I think as an industry, we are still collectively figuring out how to be most effective in mobile, and when we talk about mobile, we mean, you know, all mobile applications, all mobile services that are at a person’s disposal and so we think about it very broadly, what applications could a user or a person want, and how can we indeed provide valuable services in that context.  Search matters deeply in that context for us, and our strategy is actually relatively straight-forward.  It is, deeper the mobile offerings that we have, and those mobile offerings on the search side include things like location, extensions, app. downloads, those types of things, but also make our mobile store more effective on Windows.  

So that is sort of expanding our own offerings, and then you get to making sure that on the Windows Phone platform, that we continue to grow it, because we take advantage every time that we do, obviously given that it’s our own device.  We have a lot of benefit from the query volume that we get with every device sold.  Then we care about growing on iOS and Android, the way that we do and I should…may be I had [inaudible 0:09:24] to that as well, but we’ve focused deeply on how we grow on iOS and Android; we do the backfill on Siri, on Spotlight, on the iOS devices.  We have just launched a new search app.

John: Yeah.  Is there a…do you think there is a display opportunity here in mobile?

Rik: There is a display opportunity for us.  It’s mostly connected in the near term with the growth of our app. store.  If we look at what has happened since Windows 10 launched; since Windows 10 launched, we’ve sold about two hundred million devices.  Now not all of those of course are mobile devices, but tablets really and our mindset are mobile devices as well! And we’re seeing specifically related to the app. store that the number of paid downloads has sort of increased five-fold since the launch and so that means for marketers, greater reach, greater frequency and we’re certainly also seeing that the app. developer community is significantly more active now in developing applications on Windows, since we’ve launched Windows 10.  

John: Great.  And so in speaking just one more time to the display opportunity and mobile, and you’re talking about, you know, app. installs, I mean, are we talking about the little “320 x 50” ad or is it something more robust, when you think of a display strategy in mobile?  And I get it, you are thinking about it as kind of…you’re thinking about it as a publisher and not to monetize, so…and what I’m digging into here is just the overall trend.  Where does display go in mobile?  Does it all go to ‘Owned’, for example, just about having your app. and in the phone, perhaps?

Rik: I think it is a multitude of components.  You have the ‘Owned’ elements; you have, there is a place for the app., you know, the ‘publisher’s app.’, etc.  There is a place for ‘mobile browsing’, that will continue to be one for a while.  But it will be about, I will say, a multitude of different offerings.  The one that I am particularly interested in is in how conversation and natural language is really expanding the opportunities for advertising and for marketing and that doesn’t really matter, whether you talk about “Is that in a display setting or in a search setting?” But the communication between humans or between a person and a bot are really providing new opportunities for all of us, as marketers, and as AdTech developers and I certainly see that as a key trend.

First you see it through whatever personal assitance like, you know, Cortana or Siri, Google Now – all of those, you see it there, and I certainly expect that the depth of understanding of natural language is going to grow many-fold and is really going to provide a lot more opportunity for all of us to play in, but it isn’t going to be through traditional ad formats that we understand or that we have today.  Then if you look at what a company like WeChat is doing in China, in the communication between people through SMS and then providing bot-assisted services or bot-assisted search, that is an area where again natural language comes together with marketing opportunities and that’s again an area that we, as Microsoft, plan to play in very deeply, right.  

John: Great.  Let me take you back to your partnership on the AdTech side, AOL and Nexus specifically.  Can you talk a little bit about how that’s going, the expectations there?  Let’s just dive back like what transpired, why that’s important to you?

Rik: Yeah.  So the partnerships to us are important to us both, sort of, for ourselves on the business side, but also in a way to provide seamless access to marketers, to all of our inventory combined with whatever else is available  through AOL or through AppNexus.  If I just look at the state of the partnerships right now, with AOL, we’ve combined the selling efforts; we are in the final stages of aligning the technology platform underneath, so we’re almost there with the full integration.  

That has gone incredibly well so far, if you look at how recently we announced it, just the complexity of the implementing a partnership like this globally, that is not a US-based thing; it’s a global partnership.  But that indeed…at that stage, marketers will have indeed seamless access across our inventory through the AOL SalesForce and through the AOL Tech platform.  With AppNexus, our partnership now is bigger than it’s ever been.  

In Europe, we transitioned ten markets to a fully programmatic model, so there is no more hand selling.  We are now managing that on a fully programmatic basis and as a result of that shift to fully programmatic, we have actually increased our profitability. And so, it’s been really interesting to see that, you know, the shift from hand selling to programmatic in that sense hasn’t gone at the expense of, you know, the bottomline.  We have also expanded the AppNexus partnership with another 39 markets that we previously didn’t have the programmatic platform available in and that AppNexus now supports.

 And then of course we announced in the beginning of January that we have the search partnership with AOL live and we started on the first week of January. I think you have AOL in the Conference later. You should certainly ask them the question, but from our perspective, it’s gone super-well, and we see a lot of opportunity for us deepening the partnership and perhaps thinking about, you know, which other offerings could we take across the services that we each provide, in that we each take to market.   

John: Great.  You know, thinking about then programmatic and how you guys define it today, it’s a self-side tilt; it’s you are a publisher.  Can you like talk about may be how you guys define programmatic right now and may be how you see programmatic evolving this year, if you do see evolution or is it just about scale?

Rik: So I do think we define programmatic largely similar to how the rest of the industry looks at it, which is a combination of, let me say open RTB and deals, automated access and an ability to layer on data.  I expect, as I have been expecting in prior years that automated guarantee will become a more important component of that, but for us, we also care about search as an element of programmatic.  It’s sort of the oldest form of programmatic buying in a way in search, and so the way that we think about it ourselves is how do we connect the services, connect the users inside of those services and layer on the data that makes each of them better and then enables programmatic or automated access to all of that inventory?   

John: Right.  Key part of programmatics certainly in our Conference is the discussion around measurement and analytics, given all the data pouring through your partners, through the rest of your products – just seems like a huge opportunity for analytics, as it leads to advertising and marketing for Microsoft.  What do you think?  Is this the 2016 focus?  I mean, I’m sure the analytics are already there.  It must be proprietarian; you get those reports and what not, but what about that opportunity?

Rik: Yeah.  Marketers of course deeply care about ad effectiveness or the effectiveness of every commercial dollar spent, but if we sort of first narrow it a little bit and focus on, you know, “How do we think about the value of measurement and analytics?” every click matters to a marketer.  Some clicks matter more than others, but marketers certainly seek to understand the value of every click into the purchase of a product or into the sale of a product and we certainly continue to observe that so long as we continue to refine and improve the quality of the clicks that we provide back to marketers.

They continue to want to put more money into search and the main reason is that search is still the gold-standard of how a click or how the intent of a person connects to a click, connects to a conversion and to a product sold and so long as we can make that connection more linear and more direct, marketers are showing that they are willing to put more money into that.  And so a lot of our analytics are going into ensuring that indeed we provide both the analytics, the insight, in how valuable the clicks really are and in backing that up with a transparency that helps them bid more smartly into the marketplace.

John: Right.  So you’re talking about like kind of reporting out their buys across your publisher eco-system and the thing I’m trying to adhere to is, you know, think about Adobe – their marketing cloud Omniture, an essential element of that;  given Microsoft’s proud prowess, this could be an area that you explore as more of a product.

Rik: Yeah and we are…in fact we’ve got a couple of those live in a non-standardized fashion but the next phase for us is indeed to layer on CRM online and essentially all the CRM data that companies have at their disposal and connect those effectively with the advertising data.  Both the advertising data of the audiences that they are trying to reach, but also more broad sort of analytics in insights into overall trends in the marketplace in how they respond most effectively to those trends.

John: Right. Oh, we’ve run out of time already.  Let me toss this last question at you.  Looking at 2016, for Microsoft and in the advertising and marketing world, what’s going to be new and different this year for Microsoft as it relates to advertising and marketing?  Anything bubble up, as in “Compared to the past, this is a new thing”?

Rik: So there is a lot that we will be doing in just continuing to grow our search platform.  We’ll be adding new partners, but I might describe that more as that is part of what’s already in the cooker, yeah?  We’re already expanding our global footprint and we’re sort of deepening the investments that we are making.  We’ll continue to grow, share into the key markets like, you know, UK, Canada, Australia – a number of the Western-European markets.  That I might describe as, “Okay, that’s a trajectory that we’re on now and we’re continuing to invest in that.” What I spend quite a bit of time in thinking through myself is, in addition to what I described about human conversation, how we can make that more effective with forms of advertising and marketing, it is this notion of, “How do we provide a more 360-degree view of a person and how do we bring that in more seamlessly, both inside of Microsoft as well as with our partners and represent that person back to a marketing, you know, to a marketers?”  

But do so in a way that doesn’t damage the trust relationship that we’re trying to build with users and with the people that use our services.  I feel that as an industry, we’re focused mostly on making the 360-degree view more effective for us as a marketing community or as an AdTech community.  I’m focused on making it more useful for the person, the user, the consumer and in doing so, then delivering new marketing opportunities.  So that’s where, you know, we’ll be spending a significant amount of our energy in 2016.  But it’s going to be a good year!  There is no question about that.  

John: Fantastic!

Rik: Yeah.

John: Rik, thank you so much for spending some time with us.

Rik: Yes.  Thank you all.  Thank you for having me.  My pleasure.

John: Alright. Thank you.


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