Microsoft is set to become a gigantic advertising company that nobody saw coming

Inflation due to macroeconomic factors in 2022 is eating into consumers' wallets leading to heightened caution in spending. For online content generation and distribution companies such as Hulu and Disney+, It has led to rapid decline in subscriber growth. Most of these companies are now revitalizing their streaming services with ad-supported offerings to provide economical subscription plans.

Microsoft to help Netflix offer ad-supported subscription offering

Netflix also joined its rivals and couple of months ago announced a major partnership with Microsoft to launch a new lower priced ad-supported subscription plan for consumers. This is in addition to its existing ads-free basic, standard, and premium plans. Microsoft’s marketing partners will now have access to Netflix audience for their advertising needs as all ads served on Netflix will be exclusively available through the Microsoft platform.

The tech giant has been selected above Google and Comcast (which were main contenders for this project) due to its capability to innovate over time on both the technology and sales side. This announcement also validates Microsoft’s approach to privacy, which is built on protecting customers’ information. It expanded its ad-tech portfolio at the end of 2021 with the?acquisition of AT&T Inc's online advertising platform, Xandr Inc.?This could well have been a differentiator for Netflix to choose Microsoft above big, fully ad-based platforms such as Google and Facebook. Xandr has a strong focus on video and TV advertising and has recently partnered with GumGum, a contextual-first global digital advertising platform to offer its Contextual Targeting and Brand Safety Technology.

Leading tech companies betting big on contextual targeting to protect digital marketing ecosystem

Google, Amazon, and Facebook generated a whopping $30 B+ digital advertising revenue in 2021. These companies had access to massive data sets and are believed to have violated people’s privacy against regulations such as GDPR, CCPA and CPRA.

With new privacy laws in place, contextual targeting has appeared as the new norm in the digital marketing ecosystem. It is a method of using NLP (Natural Language Processing) and predictive modelling to target a specific audience set based on tonality and inflection in the content that user is consuming. Tech giants are now moving to contextual targeting (cookieless targeting) to keep users anonymous.

Microsoft to shape the digital ad marketplace of the future?

Microsoft will combine its audience understanding, technology and global advertising customer base with Xandr’s large-scale, data-driven platforms for advertising to accelerate the delivery of digital advertising solutions. The software giant made $10 B in ad revenue last year, selling ads on various services such as its Bing search engine and, LinkedIn. It has also changed the name of its ads business from Bing Ads to Microsoft Advertising.

Until recently, Microsoft was a distant and relatively uninvested competitor in the advertising sector. But with its 2019 acquisition of Promote IQ, a retail media ad tech company, and recent acquisition of Xandr, its clear that it wants a bigger chunk of the pie.