Microsoft Job Cuts Point To Digital Ad Shift

Layoffs, coupled with $6.2 billion charge, may indicate that Redmond is backing away from digital ad business.

In the latest sign that it may scale back its presence in the digital advertising business, Microsoft this week cut a number of jobs in its online services group, including that of a high-profile digital marketing evangelist.

Word of the cuts come a week after Microsoft announced that it would take a $6.2 billion charge against earnings in the just-ended quarter to cover a write-down of the goodwill value of its aQuantive ad business. Microsoft acquired aQuantive in 2007 for $6.3 billion.

Microsoft did not disclose how many positions were cut, but a spokesperson confirmed that layoffs have occurred.

[ Microsoft says its upcoming Surface tablet is primarily intended to serve as a showcase for Windows 8. Read more at Microsoft: We'll Sell 'A Few Million' Surface Tablets. ]

Among those to get a pink slip was Mel Carson, a longtime digital marketing evangelist whose job was to liaise with key members of the advertising and publishing communities. "7 years (2555 days) after I walked into Microsoft in London to help launch adCenter back in 2005, I was told this morning that my role has been 'eliminated' in a round of layoffs," Carson wrote in a post on his personal blog.

"After creating millions of engagements online, writing thousands of blog posts, interviewing hundreds of industry luminaries, and speaking at many, many conferences around the world, I have nothing but fantastic memories of working at Microsoft Advertising," said Carson.

Microsoft's Online Services unit, which houses its advertising operations, posted a loss of $1.45 billion over the past nine months, on revenue of just $2.1 billion. "While the Online Services Division Business has been improving, the company's expectations for future growth and profitability are lower than previous estimates," Microsoft said in a statement released after it announced the write-down.

The $6.2 billion charge may be enough to have Microsoft thinking about exiting the online advertising business, according to at least one analyst. "We sense a tidal shift away from the online business in favor of reducing losses and shifting investments to more strategic areas," said Nomura analyst Rick Sherlund, in a note last week.

In addition to display ad weakness, Sherlund said Microsoft has not been able to generate search-based ad revenue as well as Google. "The ability to drive higher revenue per search monetization has proven more challenging over the past two years than was expected," the analyst said. Microsoft in 2009 formed a search alliance with Yahoo to boost its performance in the ad space, but the deal has not yielded significant gains.

Microsoft shares were down 1.84%, to $28.76, in afternoon trading Thursday.

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