Dear Sir / Ma’am,

Thank you for contacting Microsoft adCenter Support, my name is Tamara.

After reviewing your email, I understand that you would like confirmation that you only received 35 impressions on 10/17/2006; meanwhile you had received 1,200 with Google on the same day. I realize how this may be of a high concern for you and I would be more than happy to clarify this.

I would like to assure you that our reporting for 10/17/2006 is currently not providing accurate information. It is currently a known issue and we are working diligently on resolving it. There will be inaccurate data for all reports pertaining to 10/17/2006. We would like to apologize for any inconveniences this may have caused you. I am confident that this issue will be resolved within the next few days.

For reassurance, I have run an Account Performance report by day for 10/16/2006 – 10/17/2006 and the results were as followed:

10/16/2006 – 318 impressions, 6 clicks
10/17/2006 – 37 impressions, 1 click

If you would like to run the same report as myself, please do the following:

1. Click on the Reports tab
2. From the Report Group drop down menu, select “Account Performance�
3. From the Report View drop down menu, select “Day�
4. From the Date Rage drop down menu, select “Custom date range�.. and select dates 10/16/2006 – 10/17/2006
5. Click Run REport

I have also documented our emails today in a reference number; your reference number is 1022371226.

Thank you for choosing Microsoft adCenter.

Sincerely,

Tamara
Support Representative, US Microsoft adCenter Team

adCenter Support Phone Number: 1-800-518-5689
Hours of operation: 6:00 A.M. to 6:00 P.M. PT
Simply click “Help� in the upper-right corner of any adCenter page to access a complete set of help topics, see videos to guide you through tasks, and provide useful tips. You can also find resources in the frequently asked q uestions at http://advertising.msn.com/microsoft-adcenter/faqs and on the adCenter blog at http://blogs.msdn.com/adcenter/default.aspx.

The Netscape analogy does not hold well — the browser market, while attracting a ton of attention, was a “zero billion dollar market,” and Microsoft’s aggressive move into All Things Internet put IE in the center of the company’s laser focus. Everyone at Microsoft cared. I spend plenty of time at Microsoft, and I can tell you with certainty — not everyone at Microsoft cares about adCenter. Not everyone can even NAME adCenter. I spent three days at the Worldwide Partner Conference in Boston less than two months ago, and nobody said “adCenter” out loud.

The Xbox analogy is better — an off-mainstream offering that Microsoft can tinker with until it’s right (flame on, gamers, but that’s the truth). So yeah, if by “near term” you mean three versions and almost five years (Xbox was released 58 months ago), then sure, a determined Microsoft team should be able to carve out an interesting piece of the online ad market. I think that’s what I said in the first place — and I hope we get to Version 3 faster than that.

But if you mean adCenter will get 10% of the online ad business based on what’s in the market today — I don’t see it.

And what if you’re right? Third place at 10% does not sound like a lucrative place to be. Microsoft makes money when it’s number one in the market (Client, Information Worker) and when it’s in a close one-two race (Server). It’s third-place-and-lower products hemorrhage money (you can list these yourself, but put adCenter on the list for now…).

This phenomenon is not unique to Microsoft — Jack Welch was famous for insisting that every business unit at GE be number one or number two in the market, or he’d sell it or shut it down. But Welch never worked at Microsoft, where the license to lose money in third place (or lower) is, um, not uncommon. Let’s go back to the Xbox analogy. You’re right, it’s got “huge” market share (#2 at the moment), but it’s taken a long time. And, as you know, the “home and entertainment” segment at Microsoft, where the Xbox lives, is still losing money — $1,262,000,000 in the last fiscal year, which I believe brings us to five straight years of Very Large losses — all five of the fiscal years since the introduction of the Xbox. (And that number charitably excludes the enormous expenses Microsoft lumps into “other” in its reporting. Reporting changed partway through the 2002 – 2006 period, but I think I can find over four billion in losses for that group before the trail runs cold…Pretty soon we’re talking about real money.)

So back to your assertions about the financial importance of adCenter — Where’s the secret sauce that moves adCenter ahead of Yahoo, let alone Google? And/or — what’s different about the ad market that allows the number three player to make money in the “near term?” Or should we look forward to ten-figure losses from this group for the rest of the decade?

From a technology perspective I am pretty confident that the adCenter team can deliver a world class solution for advertisers and site publishers. The system will be very competitive financially and deliver an excellent ROI.

In terms of market share…that could take longer. I agree that Google dominates search engine market share, and also dominates the ad serving business. There really hasn’t been much competition. Advertisers and web site publishers want competitive alternatives. So do search engine users.

Microsoft has come from behind before. Remember Netscape? They were free and had nearly all the market. Remember Nintendo and Playstation? xBox started from nothing and now has huge market share. It always looks impossible, but great products and staying the course eventually yeilds results.

The search engine advertising business is about $10B and growing rapidly. adCenter can reasonably get $1Billion of that market near term and a lot more long term. That moves the needle…even for Microsoft.