Massive buy feeds Microsoft’s ad revenue plans

Microsoft’s acquisition of game advertising company Massive will bolster the company’s plan to garner more revenue through ad sales, analysts said Thursday.

The move, officially announced Thursday after weeks of speculation, shows Microsoft is coming up with inventive ways to compete with rival Google on the advertising front, said Greg Sterling, principal analyst for Sterling Market Intelligence.

“Microsoft can’t go straight at Google in traditional search [advertising] mode because Google owns that market,” he said. However, advertising in games – where Microsoft has a stronghold with its Xbox console – is a way to target a demographic of adolescent and young adult males that is getting increasingly harder to reach, Sterling said.

Still, Microsoft is simply tapping a market that already exists, not creating a new one, with its move into the game advertising space, he added.

Massive specializes in placing advertising in video games, allowing developers to place items bearing brands, such as soda cans and billboards, at natural places within game environments. Microsoft plans to use the Massive technology to deliver in-game ads for Xbox Live, MSN Games and MSN Messenger. The company said it also is exploring ways to integrate the technology with Windows Live and adCenter.

Joe Wilcox, analyst with Jupiter Research, said the Massive purchase will extend Microsoft’s ability to deliver dynamic ads in Xbox games. These ads can be modified on the fly to advertise new products.

“With this technology, it will be able to bolster what it’s doing already and make it more accessible and appealing,” he said.

Microsoft plans to invest heavily in R&D, especially in online services and advertising, in its next fiscal year, which begins July 1. In fact, Wall Street is concerned with the company’s plan to spend $2.4 billion in R&D next year because it means Microsoft investors will earn less.

Of its R&D budget for next year, $1.1 billion will go to its MSN Internet unit, which includes its adCenter online advertising sales platform for search engine advertising, Microsoft CEO Steve Ballmer said Thursday.