Last week, Eric E. Schmidt, the chief executive of Google, and Steven A. Ballmer, his counterpart at Microsoft, for the first time attended an annual advertising industry meeting, the Cannes Lions International Advertising Festival.
With consumers spending more and more time online, analysts say Internet companies and ad agencies have no choice but to work together to develop ways to make money from digital media.
“There was an air of inevitability about it, because of the model not really working yet, and there’s so much content that will be dependent on it working,” said Paul Kemp-Robertson, editor of Contagious, an online magazine that tracks digital marketing trends.
Microsoft and Google, along with rivals like Yahoo and AOL, are looking for growth from new kinds of ads, including online video spots. But they need advertising agencies to persuade their clients to embrace these formats. Many companies are preferring to place ads linked to search engine results, whose effectiveness can be directly measured.
Microsoft made it clear that it wanted to cooperate, announcing partnerships with two leading advertising companies, WPP Group and Publicis Groupe. Yet Mr. Ballmer expressed skepticism about the extent to which advertising could be used to finance an explosion of online content.
Advertising agencies have long been big customers of Google, Microsoft and other Internet companies, shifting an increasing portion of ad budgets online. WPP Group, the largest ad agency owner, spends $850 million a year of its clients’ money with Google, according to Martin Sorrell, WPP’s chief executive. Ninety-eight percent of Google’s revenue comes from advertising, largely from “sponsored links” that appear alongside its search results.
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