Microsoft Seals Massive Deal

Another piece of Microsoft's (Nasdaq: MSFT) ambitious advertising distribution strategy fell into place Thursday with the software maker's announcement that it had closed its rumored purchase of in-game advertising pioneer Massive.

Microsoft did not disclose financial details, but analysts have estimated the sale would be worth between US$200 million and $400 million. Microsoft announced the deal at the wrap of its two-day Strategic Account Summit, an online advertising confab.

Targeting Specific Demographics

The deal "broadens Microsoft's commitment to providing advertisers with a highly effective means of reaching specific demographic groups," the company said.

"Advertisers are having a tough time connecting with the elusive 18- to 34-year-old male demographic, because this group continues to spend less time watching TV and more time playing video games," commented Joanne Bradford, corporate vice president of global sales and marketing and chief media revenue officer at Microsoft.

"Massive and Microsoft can help lead with our shared vision of delivering more targeted, measurable and effective opportunities for advertisers to reach today's youth audience in a largely untapped market," she added.

Microsoft also intends to target a new demographic with the technology, populating so-called "casual games" that are favored by women in the 30 to 35 age group with ads as well.

Massive's technology enables dynamic advertising to be placed in video games played by individuals or in online settings. The ads often appear similar to product placements in movies and TV shows, with advertising messages appearing on pizza boxes, soda cans and billboards and posters, as players move through the virtual gaming world.

Microsoft plans to keep New York-based Massive's employees at their current locations, with no staff reductions in the works. Massive will also keep offices in London, Los Angeles, Chicago, San Francisco, Paris, Sydney, Australia, Cologne, Germany and Toronto.

The purchase -- reports first surfaced more than a week ago -- seems a fitting capstone to Microsoft's advertising summit, which focused heavily on how Microsoft aims to outdo Google (Nasdaq: GOOG) by providing tightly focused and demographically sensitive advertising to niche audiences on a range of platforms.

Gaining Traction

In addition to its obvious applications in the Xbox 360 and Xbox live gaming environments, the Massive technology is likely to help Microsoft create a dynamic ad delivery approach for other areas -- such as the Windows Live Web services platform or MSN, its now purely content-focused portal.

Massive CEO Mitchell Davis said the company would maintain its existing customer and business relationships, which include ties with several high-profile advertisers and some of the major game publishers -- even some that make titles for platforms that compete with Microsoft's Xbox.

"With Microsoft, we have the prospect of extending our technology into a vast array of new markets and online environments," Davis said.

Massive launched its ad system in 2004 and took in more than $15 million in venture funding over the last two years as it sought to build out its network of advertisers and game makers. It has built significant momentum lately, signing a deal with Major League Baseball and Take Two Interactive to populate MLB-branded games with dynamic advertising messages.

Not Kidding Around

Massive predicted the market for in-game ads will grow to some $2 billion by 2010, which may be optimistic, even though the industry is likely to enjoy robust growth. The market was worth $56 million last year, according to the Yankee Group, and will grow more than 10-fold to $732 million by 2010.

Whatever the amount, the prospect of growing ad revenue will undoubtedly be a strong incentive for game publishers to create new titles by improving the economics of game development, something that has taken a hit in recent years due to piracy and other issues.

Meanwhile, Microsoft is building out a varied landscape for advertisers to populate with their messages, according to David Card, an analyst at JupiterResearch. He said the Massive buy underscored the message Microsoft repeated all week -- that it would take the Google online ad model and go one better.

Microsoft made it clear, Card added, that it is "deadly serious about ad-supported services and about working closely, even humbly, with marketers."