Microsoft’s advertising business has seen its ups and downs. Known most for the ad business attached to Bing, it faced considerable headwinds in going against Google in an inherently “winner take most” search marketing landscape. But Microsoft’s broader ad business has many other dimensions.
The latest milestone for Redmond’s advertising play came this week when Netflix announced that Microsoft will be the exclusive ad partner for its new ad-supported tier. For those unfamiliar, Netflix recently announced a lower-cost tier that will include advertising – a revenue diversification move.
Now it’s clear that Microsoft will help it get there. Specifically, it will provide ad sales and procurement for brand advertising on Netflix, including streaming spots. All such ads will be exclusively available through Microsoft’s advertising platform, including self-serve and programmatically-targeted ad placements.
Speaking of programmatic, there were signs of Microsoft’s moves to buttress its ad business in advance of this deal. As Localogy President Bill Dinan points out, it recently acquired programmatic ad marketplace Xandr from AT&T – a capability that likely influenced Netflix’s decision.
Classic Move
Back to Netflix’s revenue diversification, it’s a classic move to counterbalance decelerated growth that naturally occurs as companies mature. New growth is harder to find – due to reaching market saturation and the dynamics of large numbers that cause growth rates to naturally diminish with a larger base.
To that end, though Netflix publicly shunned advertising for so long, this move was inevitable. And to maintain the integrity of its core UX, advertising won’t infiltrate all Netflix content (yet). The new ad-supported tier is simply offered to tap into demand levels at the lower end of the market.
The intended result is to grow the overall subscriber base beyond those willing to fork out $15 or more per month. Those can not only represent upsell opportunities (bringing Netflix into quasi “freemium” territory) but this model also pads Netflix’s numbers with ad revenue.
And that’s where Microsoft comes in. We’ll see if it can add value and traction in Netflix’s revenue picture. Moreover, we’ll see if this move ignites Microsoft’s broader ad business. Given the revenue share it will receive, it may justify further investment in ad sales & infrastructure, thus leading to more deals.
