As part of CEO Satya Nadella's push to focus on personal computing, the cloud and productivity, Microsoft is handing over its Web display advertising business to AOL.
Rik van der Kooi, corporate vice president of advertiser and publisher solutions, announced in a blog post that AOL, which was recently purchased by Verizon for $4.4 billion, will be taking over Microsoft's display ads business and will be responsible for selling all display ads, including video ads, for desktop and mobile across Microsoft and AOL's combined portfolio of websites, which include The Huffington Post, TechCrunch and Engadget and MXN, Skype and Xbox. The partnership will take effect in the United States, the United Kingdom, Canada and seven other markets.
In return, AOL has agreed to dump Google as the default search engine for its websites for Bing starting Jan. 1, 2016, which should help Microsoft grow its share in the search market. Currently, Google remains the king of the industry, but Bing has been organically growing its search engine. Bing is now enjoying a 20 percent market share and is expected to grow more with the 10-year deal with AOL.
"This deal with AOL is the latest to validate the quality of Bing results and the performance of the Bing Ads marketplace," says van der Kooi. "Bing is also an integral part of popular first and third-party devices and services."
Although Microsoft has handed operations of display ads business to AOL, it will continue to take charge of search advertising. Display ads has been a sore point for Nadella, who recently told employees in a memo that they had to "make some tough choices in areas where things are not working." Jan Dawson of Jackdaw Research estimates that Microsoft made $250 million in revenue from display ads, comprising about 15 percent of the company's entire business.
Both Microsoft and AOL say there will be no job losses as part of the takeover. The 1,200 employees working in the display ads unit, including those in engineering, sales, marketing and other areas, will be given jobs offers from AOL.
The move largely diverges from former CEO Steve Ballmer's 2008 declaration that Microsoft was all about advertising, not software development. Following the company's $6.3 billion acquisition of advertising firm aQuantive, Microsoft realized an ads-based business model was not so bright and had to take a huge write-down for its acquisition.
"We believe in the advertising model, and we care deeply about those services that are monetized through ads," van der Kooi tells The Wall Street Journal. "But if you look at trends in the industry, it makes complete sense for us to line up with AOL."
Photo: Mike Mozart | Flickr