Microsoft announced that it is acquiring Rapt, a provider of advertising yield management solutions for digital media publishers. Rapt’s system is used by a number of big players like Microsoft, Yahoo, CNET Networks, Dow Jones & Company, Expedia, Fox Interactive Media and a number of well recognized web properties.

So what is Rapt and why is this a smart acquisition?

I came across Rapt last week while I was looking for solutions that help companies manage what could be called the advertising supply chain. And to understand Rapt, I think helps to a have a perspective on sales and operations planning and supply chain optimization. (which is something we have done a lot of)

Putting it simply, sales and operations planning is all about coordinating sales efforts with production. In the case of advertising, it means projecting how much inventory of what type (eg units, demos, etc) will be available looking out into the future and what that means for sales goals. It also includes the sales force communicating the markets demand for inventory of different types and the ongoing process of trying to match demand with supply. Once we have a sales and operations plan, its up to the sales force to sell and the supply chain to deliver.

Arming the sales force with the right information about what promises they can make to customers can make an enormous difference in terms of sell through and in terms of price realization.

On supply chain side, supply chain optimization means serving the right advertisement in the right place at the right time in a way that maximizes the revenue that can be produced on an ongoing basis. Doing this requires balancing the number of ads, placement of ads and a whole bunch of other factors. Doing this at large scale is not easy. Doing it well is worth a lot in terms of extra revenue capture.

From what I can tell, this is what Rapt’s solution helps companies manage.

This capability is at the heart of the advertising supply chain for any large publisher. And that’s why I think this is a very smart acquisition by Microsoft. The combination of Rapt’s ability to plan, coordinate and optimize the advertising supply chain and Atlas’ campaign management and ad serving capabilities should be a very compelling solution that will help Microsoft be a central player in the advertising supply chain.

And the icing on the cake is that this system is being used by both Microsoft and by Yahoo for managing their respective advertising sales and supply chains. Strategically, Microsoft blocks someone else from acquiring Rapt and screwing up their ability to integrate Yahoo and Microsoft’s ad sales and supply chain operations.

More discussion of this acquisition can be found here, here, here and here.

If you know more about Rapt, leave us a comment.

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Technorati Tags: Microsoft, Rapt, advertising supply chain

Yahoo told Microsoft to pony up a few more bucks if they really want the deal to go through. I hope for both Yahoo and MS that MS gets a clue. Microsoft has been hit hard in the market since the Yahoo bid with it’s stock down from $32 to $28 which is about a $30 Billion drop. The street is smart enough to know this deal is a bad deal, I hope MS gets the message. Although if I was some big fund with a bunch of Yahoo stock I’d be pushing hard for a sale, so Yahoo better get a clue about what it needs to do to stay independent. If these guys don’t get a clue Google will clean up big time.

If Yahoo wants to survive here are five things that would make some sense:

1) Either announce some grand social strategy that takes advantage of things like flickr or announce that that all these money losers are up for sale/spin off/close down.

2) Start thinking of advertisers as customers and make employees understand they are at Yahoo to make $$ for shareholders.

3) Hire someone who knows how to manage a sales force for sell through. Yahoo has way too much remnant inventory and sell through will all drop to the bottom line and be good.

4) Decide it’s ok to be a really successful media company and get rid of the Google envy.

5) Fire the Panama team and announce that they will partner with best bidder.

Technorati Tags: Yahoo, Microsoft

As part of our Super Fan series, we interviewed Dean Carignan. Dean is Director, Advertising Business Strategy for Microsoft’s Entertainment & Devices Division. In this role, he develops long-range strategic plans for investments in streaming video advertising, mobile marketing, and game-based advertising. Dean also spent several years with Microsoft’s adCenter group, where he drove product strategy for Paid Search, Display Ads, and Contextual Advertising.

Dean was able to provide us with some excellent perspective on these new advertising opportunities. He is part of a group that looks at opportunities to advertise via the Xbox, Media Center, Zune and mobile platforms. We go into depth on in game advertising and how important this new segment will be. He walked us through case studies of Domino’s Pizza and P&G that describe how a well designed campaign can add to the realism of the game experience and yield results for the advertiser.

This is a must listen podcast for advertisers who are struggling to break through on television and are looking for new ways to market their products using these rapidly growing platforms.

 

 Digital Podcast 37 [49:50m]: Play Now | Play in Popup | Download (398)

Technorati Tags: Dean Carignan, Microsoft, in game advertising, gaming, social media, super fans

The folks at Google must be smiling tonight. Microsoft has been lured into putting a bid in for Yahoo. This is a waste of time, money and energy by Microsoft and that should make the Google folks more confident that they are on their way to overtaking Microsoft in the battle for leading technology company on the planet.

Combining two companies that DO NOT GET IT is NOT a recipe for competing with one that does. So let me get specific about what I mean by NOT GETTING IT as it relates to Microsoft and Yahoo. Anyone who has used Google Adwords as an advertiser and Google Adsense as a publisher and done the tests on the competitive products from Microsoft and Yahoo knows what I’m about to describe.

When I set up a campaign at Google Adwords, it is an automated process that is rich with interaction and feedback. I can test a campaign, keywords and ads in a very responsive manner that allows me to set it up, test it and optimize it quickly. Yahoo’s equivalent service was a captive to the belief that permeated Overture/Goto that only human editors could screen ads to make sure that they were relevant. It would take days under that process to do what Google did in minutes As a result, I advertise at Google and do so with Yahoo when I get around to it, if ever. (BTW I told this to the senior team at Yahoo’s search marketing group, but they either didn’t want to hear it or could not change the business process that had been set in place 4-5 years before) Since then, Yahoo has tried to reinvent its ad platform and Microsoft has launched their own version, but both still lag way, way behind Google.

How will Microsoft be able to merge two hugely expensive computer platforms when neither is yet good enough to compete with Google’s ad platform? And the same problem exists when you look at it from the publisher side. Google’s Adsense delivers better ads than does the equivalent Yahoo product despite huge investment by Yahoo. What will Microsoft do, scrap one deficient set of systems for another or try to make both work? Either way, the path leads to doom and gloom for both Microsoft and Yahoo.

There is obviously much more to both Microsoft and Yahoo than search and search advertising, but let’s be clear. Search based advertising is the engine that powers Google and everything it does. Social networking/media, a la MySpace and Facebook, has huge potential and Yahoo should have been the king of that domain given all their acquisitions in that arena over the years, but if Yahoo can’t turn My Yahoo, Flickr, GeoCities, De.licio.us etc. into a Social Media powerhouse how can we expect Microsoft to do so.

I can only hope Yahoo turns down Microsoft and they come to their senses. Yahoo can still do great things with the audience and assets it owns by changing its focus to become the queen of social, instead of the king of search. Microsoft should stop listening to bankers and get back to making products that work well and can out perform the competition.

Technorati Tags: Yahoo, Microsoft, Google, social networking, social media, search

As part of our ongoing quest to examine the intersection of media and monetization, I met with Trey Shelton, Founder and CEO of Music Interactive, to discuss the company’s new service that allows viewers/listeners to trade their time and attention for free content.

 

 Digital Podcast 30 [19:52m]: Play Now | Play in Popup | Download (1709)

Trey founded Music Interactive in 2005 with the express purpose of creating new opportunities to bring together the advertising and music worlds and I think he’s found a nice way to mix the revenue opportunity of advertising with the rich media of music.

The service works like this. A major site, like MySpace, and a major advertiser, like Microsoft, want to run a promotion involving music. They line up an artist who also wants a lot of promotion and Music Interactive to provide the infrastructure for offering fans a free download in exchange for their watching a short video about the Zune.

Now we have a five way win. The consumer gets free music, MySpace gets some advertising money, Microsoft gets lots of attention, the artist gets huge promotion and Music Interactive gets a share of the ad spend.

Here are some screen shots of the service in action. In the first, I’ve added a big red arrow pointing at the ad for a free Jon Forman mp3 in exchange for “checking out the Zune”. The next two shots show the pop-up that plays the video and the download of the mp3.

It’s great to see this kind of innovation that creates win-win solutions for everyone involved.

In addition to MySpace, Music Interactive is working with Dodge, Hyundai and Ray-Ban on interactive music promotions.

Technorati Tags: Music Interactive, Trey Shelton, monetization, music

I just checked Google analytics for the daily stats at Digital Podcast and I saw the biggest one time increase in daily visitors and page views. Digital Podcast’s traffic jumped up by 80% on Christmas day. I looked at the distribution of search terms for some anomaly, but it wasn’t there. Search terms remained consistent in their distribution.

I think that people got lots of iPods, Zunes and the like for Christmas and went looking for content.

I also think that Christmas day has probably become the biggest day ever for the music industry thanks to iTunes cards. I know for sure that’s the case in my home as my daughter spent her $30 iTunes gift cards before noon and my son spent his by 4pm. That’s the first time either of them has bought music online and it didn’t take long.

No wonder Apple’s stock almost hit $200 per share.

Technorati Tags: ipod, Apple, iTunes, Zune, Microsoft

According to USA Today,

The Zune 80, Microsoft’s recently announced high-capacity digital music player, is competing with Apple’s entrenched iPod to be the electronic darling for holiday sales. But the Zune 80 is sold out or in limited supply after its first week at leading retailers, including Amazon, Best Buy, Target and Wal-Mart.

Perhaps this generation of Zune stands a better chance against iPods than the last one did.

Technorati Tags: zune, microsoft

The New York Times is reporting that:

The two companies said on Wednesday that Microsoft would invest $240 million for a 1.6 percent stake in Facebook. The investment values the three-year-old Facebook, which will bring in about $150 million in revenue this year, at $15 billion.

While I’m happy for the Facebook and Accel folks(Jim Breyer of Accel Partners bought into the promise of Facebook early on with a $12.7 million investment, now worth $1.65 billion on paper - Way to go, Jim!), it seems like an incredibly high valuation for a company with $150 million in revenue.

It goes to show the power of greed, liquidity and fear in driving up the value of a term sheet. Microsoft, Google and Yahoo all saw huge dollar signs available to whoever gets to serve ads on Facebook(the greed factor). Facebook has done an excellent job playing them off against each other to get some competing offers from Microsoft and Yahoo (the liquidity part) and to drive it home, Microsoft is desperate to stop the Google train somewhere(the fear part).

To put the valuation in perspective, Yahoo is worth $41.6 billion on almost $7 billion in revenue, so to me it’s hard to see how a $15 billion valuation makes sense on $150 million in revenue even if Facebook is on a revenue rocket.

So now that I have put my two cents into the discussion, I wanted to know what other folks think so I reviewed the Techmeme links to see what leading bloggers think about the deal. Here’s a few llinks that seem to round up the opinions

Don Dodge - This isn’t about valuation

Terrence Russell at Wired : Three Reasons Microsoft Underpaid For Facebook

Web Strategy - Why this deal makes sense

TechCrunch - Face Book is Now the 5th Most Valuable US Internet Company

TechDirt - The Difference Between Sense and Non-sense

And while they all seem to know that the valuation is wacky they do point out that Microsoft only put $240 million at risk, got a strategic foothold and perhaps blocked Google. Although Google has it’s own Facebook like site, Orkut which is on it’s own high growth path.

It will be interesting to see how the rest the social networking war plays itself out.

UPDATE: Apparently, the dumb money is flowing behind Microsoft’s strategic investment with two PE funds putting in another $500 Million.

Technorati Tags: Facebook, Microsoft, Yahoo, Google

The iPod whipped the first Zune. It wasn’t even close.

Now it’s time for round two and in an effort to differentiate the Zune, Microsoft claims it has added new unique features, enhanced it’s store and re-engineered the Zune hardware and software and the associated digital music store to make them easier to use. The company reworked the device’s navigation button and dropped one of its signature colors, brown, from the list of options. The Zune will be available in black, pink, green and red.

New features for fall include the following:

• Wireless sync. This is one area where the Zune should be able to really differentiate from the iPod if Microsoft can get it right. The new Zune devices will automatically sync over consumers’ home wireless networks . Syncing with the collection on their PC happens via a home wireless network and will start on its own when the device is placed in its dock or plugged in to charge. Alternatively, the sync can be started manually.
• Extended wireless sharing.In a move that sounds good to me, the new Zune will allow you to share select full-length songs, albums, playlists, pictures and audio podcasts from device to device. Consumers can listen to any song received up to three times with no time restrictions, and they can also pass along songs to other friends who have a Zune.
• Import recorded television content. The new Zune software will import broadcast content recorded on Microsoft Windows Media Center for Windows Vista Home Premium or Ultimate, so consumers can sync them onto their Zune media player and watch the them on their Zune
• The Zune Marketplace online store has been restocked and redesigned to make it easier for people to find what they are looking for. The Zune software has also been redesigned with a new look and feel. In addition to offering more than 3 million songs, the updated version of Zune Marketplace will launch with thousands of music videos for sale and over 1,000 of the top audio and video podcasts available for free.
• Zune Social Microsoft is creating a social-networking site, Zune Social, to encourage the sharing of samples of songs online, even for fans who do not own a Zune player. Members of the network will be able to use a small application on their computers to display which songs they have been listening to, and that information can be posted on certain Web sites outside the network or sent by e-mail to friends.

If these new features and web sites are executed well they should make the Zune at least a credible alternative to the iPod. It’s good to see that Microsoft is still working on this project and is pushing the envelope in areas where the Apple is not. I look forward to next wave of battle.

Technorati Tags: Zune, Microsoft, Zune vs. iPod

The most important media news this week may be the release by Microsoft of the “Web (RTW) Silverlight™ 1.0, a cross-browser, cross-platform plug-in for delivering richer user experiences on the Web.”

This is direct and real competition with Adobe’s Flash player used by most leading web video services.

“Entertainment Tonight,” HSN and World Wrestling Entertainment as well as several Microsoft Web initiatives including the “Halo® 3” preview, Tafiti.com and The Podium ’08 are using the Silverlight.

In addition, Microsoft will work with Novell Inc. to deliver Silverlight support for Linux, called Moonlight, and based on the project started on mono-project.com.

This steps up competition in video space much more than anything Apple had to say today. It may make things more complicated but it will also likely spur lots more innovation in web video.

Here’s a video about what Microsoft is doing with Silverlight: