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The comeback of 'the boring one'

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The advertising world is abuzz with expectation as Netflix prepares to launch an ad-funded tier to its service. Perhaps the most premium of all advertising environments, brands are chomping at the bit at the prospect of buying ad spots in Stranger Things, Bridgerton and OzarkBut there's another intriguing aspect to the move. In July, Netflix announced a partnership with Microsoft as technology operator of its advertising platform. 

This took observers by surprise since Microsoft exited the ad business in 2015 and only recently signalled its return to the fray with the acquisition of ad tech provider Xandr last year. As a newcomer, Microsoft will need to build out the necessary technology to serve Netflix ads. Netflix could have partnered any one of the established ad tech providers such as Google, Comcast or Roku. The Microsoft move looked odd and it sparked speculation from entertainment analyst Laura Martin at investment company Needham that Netflix may be looking for an exit and has struck the adtech deal to cosy up to Microsoft as a potential buyer. Such a deal would make sense as Microsoft has been building up its consumer acquisitions, bolstered by the purchase of video games publisher Activision Blizzard earlier this year. Microsoft already owns Game Pass, described as the Netflix of gaming, so combining these interests with Netflix could create a world leading entertainment offer. Some believe such a move is unlikely any time soon as Microsoft is still digesting the giant Activision purchase, which has yet to be signed off by regulators. But it highlights the journey that Microsoft is taking from business and services provider to entertainment leader.

Comeback
This is part of a long comeback for Microsoft, which was "nearly left for dead in the early 2010s", as Neel Pandya, CEO Europe & APAC of Pixis, a marketing AI provider, puts it. Often thought of as a plodding B2B technology provider, Microsoft has been compared unfavourably to the sexier, consumer-facing FAANG companies Facebook, now Meta, Apple, Amazon, Netflix and Google. These have innovation at their core. However, Microsoft has been turning around those assumptions as it gobbles up company after company to build a powerful position in business services and uses this as a springboard to move further into the entertainment field. "Many questioned Microsoft's ability to innovate fast enough to keep up with the new, market-disrupting FAANG brands. Ten years ago, Microsoft had an image of stagnation and decline as its efforts to enter the mobile market with Windows OS fell flat when faced with Android and Apple's shiny iOS," adds Pandya. This is a stark contrast to Microsoft today. Its share price has risen nearly 600% since 2014.

"The brand is seen as a company on the up and up," he says. With a net value of over $2 trillion, Microsoft has the third highest market cap in the world after Saudi Aramco at over $8 trillion and just behind Apple. How has Microsoft managed to restore its reputation from the lows of the 2010s and will it succeed in getting ahead of the game? In the 1980s and 90s, it rose to become the world's top tech company, but in the early 2000s, its dominant position in computer operating systems through Windows OS was chipped away by the rise of smartphones, tablets and Macs as Apple's iOS and the Google Android systems became embedded in more devices. Windows' market share of operating systems fell from 96% in 2005 to 35% in 2012. Microsoft struggled in both the business and consumer markets despite the success it scored with Xbox gaming.

Global hackatlon
The turnaround began when chief executive Steve Ballmer stood down in 2014 to be replaced by Satya Nadella who created a cloud-first strategy as well as a more innovative culture, introducing a global hackathon for staff to create new ideas and launching the Microsoft Garage innovation hub. This has led to innovations such as the HoloLens augmented reality headset, Teams video conferencing and developments in AI and chatbots. Even so, Microsoft's biggest innovations are often me-too versions of competitors' successes. Its FAANG rivals are more closely associated with disruptive innovation that changes the way we live, and are seen as more nimble and exciting than Microsoft, which is cast as a follower and acquirer.

The bread and butter of Microsoft's development has been cloud services. As Pandya says: "Microsoft has carved out a niche in cloud services through its hybrid cloud computing platform, Azure, which has doubled its market share this year alone," and he adds: "Time and again, Microsoft has shown us there's significant life in the old dog yet – the company continues to reinvent itself to drive double-digit growth." Microsoft's marketing strategy is to drive its enterprise business by offering cloud-based services from Azure to Teams, Office 365, CRM services as well as operating systems, Surface computers, X-Box and an array of other products. It has made 14 acquisitions of companies for over $1bn, with Activision Blizzard the largest at nearly $70bn, LinkedIn for $26bn in 2016, cloud and AI company Nuance for $19.7bn in 2021, Skype for $8.5bn in 2011 – its business arm is now Teams - and Minecraft creator Mojang for $2.5bn in 2014.

Hovering over Microsoft's rise, fall and now apparent rise again is of course the presence of co-founder Bill Gates. He stepped down as chief executive in 2000, remaining on the board until his departure in 2020. Grace Francis, Global Chief Creative and Design Officer at agency Wongdoody says: "His multigenerational pastoral care of Microsoft shifts a brand that would have been seen as plodding and predictable to trusted and transparent. This extends across product set, share price and brand personality. Frame all this against their wilder peers, and Microsoft can diversify and grow in any direction and they will look intentional, collected and potentially prophetic." Meanwhile, the FAANG tag to describe the world's most successful US tech companies is being replaced by another acronym – MAGMA, consisting of Microsoft, Apple, Google, Meta and Amazon. This shows the success of the company's drive to restore its fortunes and take on its consumer-focused rivals. Netflix is no longer part of the gang.

If Microsoft were to fork out some $100bn to buy it one day, that would be a huge further step in its journey from B2B ingredient maker to dominant power in consumer entertainment. Though unlikely to ever achieve the edgy, fast-moving and innovation-led reputation of an Apple, Meta or Netflix, Microsoft could one day take them on them at their own game. 

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