With Microsoft’s recent acquisition of Aquantive, an online advertising company, for $US6 billion, it’s pretty clear that Microsoft wants a slice of the online advertising market, which is dominated by Google.
During a recent whirlwind visit to Australia, Microsoft chief executive Steve Ballmer defended Microsoft’s online strategy, saying that while there is some possibility that the Internet market could overheat, the current situation is very different to the dot.com bubble of the 1990s, which as we all know ended in tears in March 2000.
“I say that for a lot of reasons this is different to competing against Netscape … the simplest one is that Google and Yahoo have real revenues. Netscape never did,” Microsoft Chief Executive told the Australian Financial Review.
As you may recall, Netscape was one of Microsoft’s main competitors during the dot.com bubble. Netscape developed the Netscape Navigator web browser that helped propel the web into the mainstream. In the mid 1990s Netscape Navigator had 85% market share; today it has less than 1%. The main reason for this is because Microsoft developed its own web browser, Internet Explorer, that it gave away for free as part of Windows. As Netscape found, it’s very hard to compete against a free product that is given away to almost all of your potential customers.
Ballmer admitted that while Microsoft was trying to build a powerful “online advertising and commerce marketplace”, Windows would remain the company’s cash cow, which Ballmer described as a $10 billion business.
Ballmer is both right and wrong.
He’s right to say that Google and Yahoo are real businesses (unlike Netscape during its heyday, which was fueled by speculation rather than revenue), but he’s wrong to think that Microsoft can buy its way into the online advertising market and expect to be a major player like Google.
Microsoft was able to destroy Netscape by giving away an alternative browser away for free. In the online advertising market, Microsoft won’t get very far if it tries the same strategy — but then again, stranger things happened on the Internet.