Microsoft has hived off more of its advertising sales business to AppNexus, the world's largest independent ad tech company.
AppNexus' publisher suite will now be used for Microsoft ads to be bought programmatically (using automated technology, rather than via a big salesforce) across 58 global markets, up from 39 previously.
While this sounds like a simple partnership expansion, it's interesting for a number of reasons:
- Microsoft is taking another step away from the highly-competitive display advertising business. In the summer Microsoft announced a big strategy change: 1,200 of its advertising staff were shifting over to AOL, which was absorbing Microsoft's direct sales business in its nine biggest markets, including the US and the UK. Meanwhile, AppNexus became Microsoft's exclusive programmatic advertising partner in 10 markets, and a lead technology partner in 39 markets.
- This is great news for AppNexus. Microsoft is its biggest sell-side customer and this deal will immediately add revenue.
- It could have an impact on the Microsoft/AOL partnership. Clearly AppNexus proved that selling advertising programmatically is cost-effective. A person with knowledge of the previous AppNexus/Microsoft deal told Business Insider that while revenue remained more or less steady in the markets AppNexus had taken over, profitability has increased dramatically. Indeed, just last month, AppNexus announced the launch of a new unit for Microsoft to sell 100% of its ads programmatically. Can AOL's expanded salesforce deliver the same kind of bottom-line results? If not, what happens there?
A Microsoft spokesperson told Business Insider: "Microsoft has a long standing relationship with AppNexus and we're expanding our existing global technology partnership to simplify the buying process for our customers and resellers, across both reserved and programmatic inventory."
The spokesperson would not provide comment on the additional Microsoft media billings now running through AppNexus' platform but did confirm no Microsoft job roles would be affected by the move.
An AppNexus spokesperson explained why the expanded deal is a "big win" for the ad tech company:
"First, it expands our engagement with Microsoft, which is our biggest sell-side customer. Second, it brings nine new sales houses onto our platform and expands buying commitments with four existing sales house customers. Third, it positions us to expand in Latin America, where earlier this year we acquired Real Media Latin America. A robust expansion in that market will bolster our clearly articulated mission to take [Google's] DoubleClick for Publishers head-on in 2016."
Microsoft is also an investor in AppNexus, having participated in its $50 million Series C round back in 2010. In total, AppNexus has received $288 million in funding, is valued at $1.2 billion, and is expected to be heading towards an IPO in 2016.
While Microsoft has been slowly shutting down several of its advertising divisions over the years, the company is still a big player in the online advertising space through its search engine Bing.
Part of the 10-year deal with AOL also saw Bing taking over from Google to power search listing and ads for all AOL owned and operated properties such as The Huffington Post and TechCrunch — adding a modest increase to its share of the search market, behind Google.
The advantage of Bing ads for Microsoft is that they are mostly bought through a self-serve platform, meaning it requires fewer sales staff than its display ad business. Microsoft's first quarter earnings showed Bing had reached profitability, contributing more than $1 billion to revenue in the period.
The news of the expanded AppNexus partnership is yet more evidence that Microsoft is internally refocusing around its strengths and cutting out more unnecessary costs to improve its bottom-line.
