Microsoft Goes Back to the Future Vs. Google, Apple

By Joe Wilcox  |  Posted 12-20-2007

Microsoft Goes Back to the Future Vs. Google, Apple

Today, Microsoft and Viacom announced a content deal that is reminiscent of some mid- to late-1990s deals for Internet Explorer and MSN. But instead of AOL or Netscape being in Microsoft's sights, it's Apple and Google.

Valued at $500 million, the arrangement includes the availability of Viacom content to Microsoft and Viacom using Microsoft's Atlas ad technologies. Microsoft acquired Atlas with its $6 billion purchase of aQuantive.

The deal is strange, though. Several Viacom properties, such as MTV, are already big consumers of Microsoft technologies. From that perspective, the deal kind of makes sense. But Microsoft also put some stress on the Viacom relationship by last year's Zune launch.

Microsoft and MTV had announced collaboration for Urge, which was supposed to be the flagship music store for Windows Media Player 11, and Vista. But before either product shipped, Microsoft changed the focus of its music strategies to Zune and the Zune Marketplace, which sidelined any meaningful collaboration on Urge. In August, MTV entered into a partnership with RealNetworks for the music store Rhapsody America, laying to rest the somewhat mummified Urge.

So in some respects, Microsoft and Viacom already have a contentious relationship. If these two companies are huggy-kissy, one is turning its face away because of bad breath.

Next page: Microsoft Joins the 'Real World'

Microsoft Joins the

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Microsoft Joins the 'Real World'

As part of the deal, Microsoft will get access to loads of Viacom content, including Comedy Central and Paramount Pictures, for MSN and Xbox 360, among other products or services. Given the Hollywood writers' strike, Microsoft will be serving quite a bit of recycled content for a while. The TV season is winding down rather rapidly this year. I suppose the strike could be good for MTV reality shows like "Cribs" or the "Real World," assuming Microsoft uses some of that content.

Based on early details about the deal, Xbox 360 would be initially the biggest beneficiary among Microsoft products or services. Already, Microsoft offers movies through Xbox Live, including a fair amount of Viacom content. Additional Viacom content could make the video service more appealing—and in the place Microsoft wants. While Apple has done quite well selling movies or TV shows from the iTunes Music Store, video content's more natural place is the living room. For years, I've said the Xbox is Microsoft's Trojan horse in the living room. The console is increasingly about more than just gaming. The Xbox is Microsoft's home entertainment portal.

Gaming is certainly part of the deal, as Viacom plans to provide casual gaming content for the Xbox, and also MSN and Windows. There are lots of cross-content and cross-promotional gaming possibilities, should Microsoft and Viacom choose to engage in them. Among them:

-Viacom ads or video shorts placed in console games

-Cross-promotional game and television marketing, such as mini-episodes on Xbox Live or TV show-specific games on MSN

-Windows Live or Xbox Live social network tie-ins to live MTV broadcast or reality show programming

-More video content or mini-games for cell phones or other mobile devices

If the companies aren't thinking about stuff like this, they should.

More broadly, the advertising arrangement is quite the tangle. Atlas will serve ads across Viacom's U.S. Web sites, but not internationally. Microsoft also gets rights to sell leftover advertising banner space, for which the two companies would share revenue.

As part of a five-year agreement, Microsoft will buy advertising on Viacom's broadcast and online networks. That portion of deal includes awards show promotions and/or sponsorships on BET and MTV. My prediction: Microsoft's Live Earth sponsorship, which included video streaming, will be a model for award show content available online.

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Why is This Deal

a Party?">

Why Is This Deal a Party?

As I said earlier, Microsoft and Viacom already were partners. Much of today's announcement formalizes existing deals, sets a clear timetable and monetary value on the arrangements, and clears the way for broader content and advertising sharing.

The ad deal helps legitimizes Microsoft's aQuantive assets and gives the company a big, showcase customer in Viacom.

Make no mistake: Microsoft will seek to advertise across multiple channels in all future deals. Microsoft rightly recognizes that Google's advertising approach, while expanding beyond online search, isn't broad enough to capture the wealth of advertising.

Microsoft is taking a similar multichannel approach to music and video content. Apple's iTunes Music Store movie, music and TV content is largely tethered to computers, iPod or Apple TV. Microsoft is leveraging its large Windows Media Center install base (including Vista), MSN and Live Services, Xbox, Windows Mobile-based phones, and Zune. Microsoft's challenge will be providing audio and video content, games and advertising ubiquitously across all of these platforms.

The question: After Viacom, who next will cut a similar deal with Microsoft? Nobody partners like Microsoft. In the 1990s, deals like this one helped Microsoft make a place for Windows on the Web. Through smart deal making, Microsoft helped ensure that Internet Explorer would be the main means for consuming Web content. Today, content providers are seeking new channels. Meanwhile, through the Web, Google transforms advertising. Microsoft wants to maintain its products' relevance in part by providing technology for delivering content, ads and demographic tracking to anyone, anywhere and on anything.

Microsoft can get there one deal at a time.