It took Microsoft (Nasdaq: MSFT ) a little time, but it finally persuaded a meaty third party to let Mr. Softy serve up its targeted text ads. Microsoft's fledgling adCenter will soon allow its customers the ability to reach the gated community of Facebook college students.
Young adults have always been a prized demographic group for advertisers. Between big-ticket purchases like their first car and lifetime calls like their first credit card, sponsors angling for discretionary income like to bag customers while they're still young.
Facebook.com is the perfect catch for Microsoft. Unlike conventional social-networking and photo-sharing sites like MySpace.com or CNET's (Nasdaq: CNET ) Webshots, Facebook is an exclusive community of snapshot-sharing college students. You can't open an account unless you have an active campus email address, which is also a coup for Microsoft, since advertisers will be able to pinpoint localized campaigns.
Facebook isn't alone. Webshots recently launched its College Live site, which requires members to sign in with their .edu email address. However, Facebook is the sole player that defines this niche; it's even bordering on verb status. Microsoft is blessed to have landed a significant partner.
If at first you don't succeed, knock on new doors
For a while there, it didn't seem like Microsoft would get its foot into the contextual-marketing door, beyond its own collection of popular Web destinations. It went after America Online, but was rebuffed when Google (Nasdaq: GOOG ) acquired a 5% stake in AOL.com. Google then signed deals with everyone from MySpace.com to MTV. The MTV deal had to sting, since Microsoft and MTV parent Viacom (NYSE: VIA ) were already in cahoots on a digital music service and would have made for logical ad partners.
Yahoo! (Nasdaq: YHOO ) hasn't been as aggressive as Google, but it did strike up a marketing alliance with eBay (Nasdaq: EBAY ) , which could be monumental if eBay opens more of its juicy real estate to paid-search advertising.
This left Microsoft with a pretty grim playing field. It has been slow in launching its new online advertising service, making it a hard pitch to potential third-party publishers, especially as its more established rivals called dibs on all the worthy dot-com properties.
Landing Facebook, in part, helps legitimize Microsoft's nascent adCenter. Sponsors will come, and other popular content sites will answer Microsoft's call.
The more aggressive approach
Microsoft may be at a disadvantage to Google and Yahoo! by being late to the paid-search game, but it does have a monetary advantage. All three companies have drop-dead gorgeous balance sheets, but whereas Google and Yahoo! have billions of dollars in the bank, Microsoft has tens of billions of greenbacks to fall back on.
Even after the company's aggressive buybacks and generous dividend distributions, Microsoft remains a cash pinata. If it's serious about building up its adCenter business, its best move may be to buy popular content sites outright.
Media giants have been the biggest nibblers, scarfing down stand-alone hotbeds like iVillage, MySpace, and Atom Entertainment. The portals have been surprisingly absent, for the most part, from the content-site buying sprees. Most of Google's buys have been upstart technology companies. Microsoft is in a position to change that, and with a few choice purchases, it could jack the bronze-medal podium a little higher.
Companies like YouTube, Digg, or Craigslist are probably not interested in selling out, but one can imagine that public companies like CNET or The Knot (Nasdaq: KNOT ) wouldn't kick a meaty offer out of the boardroom. CNET would provide Microsoft with the ability to corner the college photo sites, not to mention a collection of high-traffic technology and entertainment properties. The Knot, now that it has acquired WeddingChannel.com, would give Microsoft the lead in the high-paying keyword space of marriage planning.
Sooner or later, Microsoft will realize that if it can't make enough friends online, it will have to pay guests to attend its party. Facebook? Nice catch. Now go out and do what most of the Facebook faithful do: try to land the company of someone new.
Longtime Fool contributorRick Munarrizwould put himself up for sale if he were a website instead of a person. He does not own shares in any of the companies mentioned in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has adisclosure policy.