Microsoft Bets on Interactive Ads

Acquires Navic Networks to Pursue Cable Market

Software giant Microsoft is strengthening its presence in the cable-television industry by acquiring Navic Networks, a Waltham, Mass.-based firm that provides software to deliver addressable advertising and interactive applications to some 35 million digital set-tops.

Terms of the deal for privately held Navic, which will become a wholly owned subsidiary of Microsoft, were not disclosed.

While Microsoft has attempted to gain a major foothold in cable for more than one decade by selling software for digital set-tops, in recent years, it has focused most of its set-top efforts on the burgeoning Internet-protocol-TV market and shifted its cable emphasis to back-end systems, such as the Atlas video-on-demand advertising-management business it picked up with its $6 billion acquisition of online-advertising firm aQuantive in 2007.

The Navic deal is consistent with that strategy, as the company will become part of Microsoft’s Advertiser and Publisher Solutions Group, which provides a comprehensive advertising platform aimed at all digital media and includes the Atlas business.

Microsoft will work with Navic to see how its campaign-management and advertising platform can benefit advertisers, programmers and operators. Microsoft figures that it can leverage its expertise in enterprise-class software systems as the cable industry tries to bring interactive advertising to a meaningful scale.

“This is not about creating an operating system for the cable industry,” said Scott Ferris, general manager of Microsoft’s APS Group. “This is about partnering with the cable ad platform to bring them more enhanced capabilities.”

According to Ferris, Navic will remain in its current form for the foreseeable future and Microsoft will focus on giving Navic CEO Chet Kanojia and his team the resources to expand the business. Integration with existing parts of APS, such as the Atlas VOD system, will come eventually, as will combinations with Microsoft’s online-advertising tools.

A key to the acquisition was Navic’s Admira targeted advertising system. Admira, which is being used by Cox Communications in its San Diego systems, is a complete advertising-management system for local-cable ad avails that analyzes set-top viewing data to dynamically place ads on networks that are delivering the type of viewers advertisers are seeking. It then anonymously tracks viewing of the spots to deliver Web-like accountability to advertisers.

This spring, Navic upgraded Admira so that spots placed through the system could offer the same type of remote-control-based interactive applications the company had already offered on conventional spots, such as graphic overlays that can be clicked to request information on a product or the ability to telescope from an ad into an on-demand infomercial.

Navic has supplied similar interactive capabilities to programmers for several years, such as voting applications for Bravo’s Top Chef and Project Runway. “Navic is a proven company in the ITV space,” Ferris said.

A potential stumbling block for Microsoft as it attempts to expand Navic’s interactive-advertising business is Canoe Ventures, a new company backed by major operators Comcast, Time Warner Cable, Cox, Charter Communications, Cablevision Systems and Bright House Networks that has pledged to create a national platform for delivering targeted spots through operators’ local avails.

Last week, Canoe -- which had previously been called “Project Canoe” and which had maintained a thick veil of secrecy over its plans -- named media-buying veteran David Verklin as its CEO and said it aims to sell its services to major programmers such as ESPN instead of pitching its technology directly to advertisers.

Many of those planned features, such as targeted spots or interactive polls, are similar to Navic’s offerings, although the real promise of Canoe is creating a unified back-end system for interactive advertising across the country’s biggest operators.

For his part, Kanojia thinks the technology offered by Navic and Microsoft could be complementary to, not competitive to, Canoe. He also noted that questions remain over exactly what Canoe will offer and, more important, when it will commercially deploy it.

“Fundamentally, advertising is going to become a multiformat game,” Kanojia added. “I think for any consortium, in our opinion, time to market will be a very critical requirement in this game.”