Microsoft's Ad Blitz Targets Wrong Enemy

REDMOND, Wash. (TheStreet) -- Within the last year, Microsoft (MSFT) has been Jerry Seinfeld's pal, a PC, a party planner and a 4-year-old girl. It has been a costly identity crisis.

It has also been a long 18 months of ad wars that's only intensifying with Windows 7's launch on Oct. 22. In July 2008, after Microsoft and its embattled Windows Vista operating system suffered no small degree of public humiliation from Apple's ( AAPL) "Get a Mac" ads, Microsoft's vice president of Windows consumer marketing Brad Brooks took the stage at the company's worldwide partner conference and said the company wanted to "take back its name and take back its brand again." According to TNS Media Intelligence, the company spent $470 million on advertising the following fiscal year attempting to do that.

The effort included more than $305 million on television commercials produced by ad firm Crispin, Porter and Bogusky, including the "I'm a PC" spots featuring hip-hop star Pharell Williams; "Laptop Hunter" ads that focused on the price disparity between Apple hardware and Windows-laden competitors (resulting in an Apple objection); and "Kylie" ads featuring a 4-year-old girl making photo editing look simple.

Despite holding more than 90% of the operating system market and limiting Apple's share of the PC market to 8.7%, according to Gartner, Microsoft outspent Apple's $214 million ad budget for the same period and doubled its rival's TV spending in the last two quarters. Months later, the question of "why" remains.

"People look at this and say it's positioning versus Apple," Brooks says. "The reality is, nope, it's going out and building brand loyalty and pride around the brand."

Microsoft's latest array of ads displaced a short-running, ill-received campaign featuring former Chairman Bill Gates palling around with Jerry Seinfeld. It was Gates' last turn as the public face of Microsoft and, according to at least one critic within the advertising industry, the last time the company presented itself with a consistent personality similar to that of American Express ( AXP) or Walt Disney ( DIS).

Microsoft's new ads seem as sporadic and mercurial as its current figurehead and one of their biggest proponents, Chief Executive Steve Ballmer.

"When Bill Gates was the voice, it had a different purpose and had sort of a quirky personality to it that reflected more in the work than it does today," says Andrew Graff, CEO of Watertown, Mass.-based ad firm Allen & Gerritsen. "Some of the stuff they're doing today, like the commercials with the little girl, are starting to bring in personality, but that's not combating Apple's cultlike brand persona."

Nor is it helping the company's revenue or market footing. Microsoft's revenue dropped 17% in its fiscal fourth quarter from a year earlier, including a 29% fall in Windows revenue based on "PC market weakness." Revenue was down 3%, with Windows sales off 13%. The lost $2 billion was roughly what Adobe ( ADBE) paid for Omniture ( OMTR). Apple, meanwhile, saw its global revenue jump 12% last quarter despite an 8% drop in computer sales.

Charlie Wolf, an analyst for Needham & Co., says Apple's share of the home market was growing before "Get a Mac" aired, after bottoming out at 2.5% in 2001. The best Microsoft can hope for by confronting Apple directly is either a point of Apple's market share or a stalemate. Wolf says Microsoft should start viewing its own market share as 70%, with roughly 25% belonging to pirated copies of Windows, and reallocating its ad funding appropriately.

"I know piracy is a very difficult problem for Microsoft to solve, because the fastest-growing markets are the emerging markets that are rampant with piracy," Wolf says. "The money Microsoft's spending on ads and marketing could better be spent on this problem not because added revenue means more success, but because there's a bigger share involved."

Brooks acknowledges that piracy has troubled Microsoft in countries like China and India, but says Western users' belief that Windows XP is "good enough" is just as problematic. Though 90% of the population uses Windows, roughly 70% is still using XP nearly eight years after its release, a statistic Brooks blames on Vista's "tarnished" image and glitch repairs that came too late. The nearly 18 months of commercial combat with Apple, he says, was an attempt to repair that image and maintain visibility until Windows 7's arrival.

"Vista took a lot of hits in the marketplace," Brooks says. "We had a product and a reception of it that lingered through the lifespan of Windows Vista, which ends Oct. 22, that put a lot of questions in people's minds about whether Vista was good enough."

Windows 7 is a bit of a softer sell, with a campaign focused more on the product than its competitors. The gentler approach may be wise; of the 12% of U.S. computer-owning households that own a Mac, 85% also own a Windows PC, according to NPD Group. Considering Microsoft's reaction to an infomercial-style YouTube video promoting Windows 7 house parties , it may take only a bit more ribbing by Apple to ratchet up the snark and spending again.

"Clearly, they're threatened by it," Graff says. "You would think that, as such a dominant leader, they wouldn't need to fight back, but I think they look at what Apple's doing and realize that they could be the next generation's product of choice."

-- Reported by Jason Notte in Boston.

Follow TheStreet.com on Twitter and become a fan on Facebook.

Jason Notte is a reporter for TheStreet.com. His writing has appeared in The New York Times, The Huffington Post, Esquire.com, Time Out New York, The Boston Herald, The Boston Phoenix, Metro newspaper and the Colorado Springs Independent.

More from Technology

Facebook CEO Mark Zuckerberg Deflects Tough Questions From European Parliament

Facebook CEO Mark Zuckerberg Deflects Tough Questions From European Parliament

These 5 Autonomous Driving Stocks Are Flashing Buy Signals

These 5 Autonomous Driving Stocks Are Flashing Buy Signals

10 Seconds To Genius: Facebook

10 Seconds To Genius: Facebook

10 Big Tech Companies Are Spending $100 Billion in 2018 to Dominate Even More

10 Big Tech Companies Are Spending $100 Billion in 2018 to Dominate Even More

ACLU Asks Amazon to Halt Sale of Facial Recognition Software

ACLU Asks Amazon to Halt Sale of Facial Recognition Software