For the past few months, Microsoft has been shifting its web-based free applications like instant messaging, blog hosting, VoIP & Hotmail to a new site branded as Windows Live. The purpose seems obvious: to create an umbrella of Microsoft's advertising-based offerings for its clientele. But the implications for advertising are far deeper than that - right upto the ultimate vision of subsidizing application software costs by serving targeted online ads to users of offline applications!

Around a year ago, Google set up 2 services - one with a lot of fanfare and the other almost surreptiously (to the extent that anything on the web can be surreptious!)

The first was Google's Ad Words program - by which website owners could bid for keywords & if successful, Google would display links to their site alongside the Search Results. This was immediately adopted by Yahoo!, Microsoft & many others.

The second was Google Mail or Gmail - which extended the Ad Words concept to email - by displaying paid links alongside email, based on keywords present in the subject & body text of emails. What Google had done was (as usual?) set a trend. A trend that can in future see all "basic" services subsidized by targeted online advertising. Interestingly, this trend also includes the telecom industry, where VoIP promises to make international voice calls free of cost.

The Future Windows Experience
Back to Microsoft. In the words of MSN Chief Revenue Officer, Joanne Bradford, Microsoft is currently "extending our advertiser offering under the brand of Microsoft Windows ... creating an array of powerful new advertising opportunities to reach our engaged consumers". The plans include maintaining a central consumer profile database which will include interests, relationships, opt-in details & many other bits of data - to be updated on a continuous basis.

Windows Live plans to provide paid services along with a host of free services. So we can expect subscription-based "PC health" service with anti-virus, firewall, PC maintenance & data backup to be available along with free services like on demand virus scanning, web-email & instant messaging.

According to Microsoft, Windows Live will primarily be free to users and supported by advertising, along with some subscription & transaction-based services.

Online Ads Served To Offline Software Applications
It gets more interesting. Microsoft has announced Office Live, a set of web-based services designed to integrate with its offline application Microsoft Office. Small businesses will be able to "tie up" their Microsoft Office to e-mail & web hosting. Along with subscription-based access to scores of hosted business applications like project management, sales management, time sheets, billing & even financial accounting.

Here too, Google is not to be left behind - last month Google & Sun declared an alliance which could offer a hosted "office productivity" suite of applications, based on Sun's OpenOffice suite, "explore opportunities to promote and enhance Sun technologies" including Open Office.

The year 2006 could see both Microsoft, Google & others launch hosted services which will be linked to offline business applications - bringing the opportunity to serve online ads on offline applications!

The Ubiquitous Online Ad
With all content as well as distribution going digital, pervasive online advertising is inevitable. Offline applications could connect to online ones in a "collaborative" manner - ultimately providing an platform to display ads targeted at users of offline applications.

The advantage Microsoft has over others like Google & others is its truly massive installed base of Windows operating system & applications. The Google-Sun alliance is an acknowledgement of this fact.

On the other hand, Microsoft's adCenter is much more than answer to Google's Ad Words - it is but step one of a huge concept of ubiquitous advertising designed to leverage its worldwide installed base of Windows users. By the way, the gaming industry already has implemented ad neworks for serving & monitoring targeted ads inside games.

While over-exposure & resultant clutter of online ads may be controlled by smart targeting (aided by vast centralized user profile databases), it is privacy & security issues which are likely to be the major causes of concern.