Setting the stage for disappointment in online advertising

This note is about the difficulties of forecasting. The investment analysts are generally very optimistic about the future. When coupled with a focus on individual companies, they can end up forecasting that all companies will increase their market share. I will illustrate with the online advertising industry. The chart below highlights nine important companies in the industry. Google is the leader with more than 50% of the market. Facebook, Baidu and Twitter are the promising up-and-coming companies. Microsoft, AOL, and Yahoo are yesterday's companies.

Microsoft's future

In an earlier positing (here), I described how Microsoft's now outgoing CEO Steve Ballmer talked about Microsoft being a consumer company, despite having only around 15% of sales to consumers. Windows is mostly bought by OEMs (original equipment manufacturers) and Office by corporations. Since Microsoft is invoicing corporations and not consumers, it is a business-to-business company whatever the CEO is saying. Very few consumers make an active choice to buy Windows or Office. Consumers actively buy Playstation and Skype services but those products are a small portion of Microsoft's revenues.

Microsoft has a long way to go

Steve Ballmer, CEO of Microsoft, is being interviewed in MIT's Technology Review. The interviewer summarises his impression of Google's vision as "indexing the world's information" and Apple's as making "insanely great devices for consumers". Ballmer responded with Microsoft's vision:

We empower people and businesses to realize their potential. And to expand, I would simply say we’re about defining the future of productivity, entertainment, and communication.

I am reminded of an old, failed Sony vision about providing the networked home. Companies do not make money by formulating nice or catchy vision statements. Companies make money by having clear corporate and business-unit strategies and then executing well. However, Ballmer's statement is simply too general to be a good vision, and I hope Microsoft's strategies are much sharper.