There’s been a lot going on in Redmond lately. In recent months, Microsoft has refreshed its line of Surface tablets, announced the Xbox One, updated Windows 8 (welcome back, Start button), and inked a deal to acquire Nokia. All of this activity has made a significant splash in the ads that Microsoft has aired on TV. In fact, through the first nine months of 2013, Microsoft aired 41 unique new ads. That’s up more than 125% vs. the 18 unique ads that the company aired through the first nine months of 2012. As the holiday season ramps up, we expect to see a flurry of advertising activity from Microsoft. Keep your eyes on Microsoft – they’re the current Ace Metrix “Brand to Watch”.

Qualification

First, a note of clarification. In the Ace Metrix platform, Microsoft isn’t a brand. Rather, they’re an ever-expanding portfolio of 10 brands, which includes Bing, Outlook, Internet Explorer, Windows Phone, Xbox Hardware, Kinect, etc. But for the purposes of this edition of “Brand to Watch”, we’ll bend the rules and treat Microsoft as a single brand.

The Big Picture

A year ago (4Q 2012) was a very busy time for Microsoft’s advertising team. Coincident with the launches of Window 8, Windows Phone 8 (“WP8”), and the original Surface, the company aired 35 unique ads during that three-month period (see Chart 1). Those 35 ads represent about two-thirds of the 53 total unique ads that Microsoft aired last year. Given the fresh product cycles and the holiday season, 4Q 2012’s high ad volume wasn’t particularly surprising.

What was surprising is how poorly the ads performed.

Microsoft’s 4Q average Ace Score of 506 declined by 25 points vs. the first nine months’ average of 531. This happened despite the success of the company’s three Surface ads, which averaged 635 and included “On The Surface” (674). That spot was one of the highest scoring ads across all brands and all categories for the entire year, landing at #6 on our 2012 Ads of the Year list.

Microsoft’s challenges a year ago were mostly the result of its six Windows 8 ads, which produced an average Ace Score of 480. These ads generally performed well within the Change component score (+20 points vs. the 4Q 2012 Technology industry norm), but lagged significantly in Likeability (-27 points) and Desire (-21 points). A pair of Bing ads, with Ace Scores of 472 and 361, also weighed on 4Q’s overall performance.

Volume-wise, Video Games was Microsoft’s busiest category a year ago (16 of the 35 4Q 2012 ads), followed by Mobile Devices (8 ads), and Software (6 ads).

Chart 1: Microsoft TV Ads by Quarter

Patterns in the Data

A time series scatterplot of Microsoft’s ad performance by product category over the past seven quarters shows some interesting patterns in the timing and effectiveness of the company’s creative efforts (see Chart 2).

1. 4Q 2012’s high volume of advertising is evident in the chart. The 35 unique ads aired during that quarter are nearly twice the volume as the next highest quarter, 1Q 2013, with 19 ads. It’s too soon to make the call on 4Q 2013, but if last year is any indication, we should see a significant pick-up in volume vs. the 11 ads that first aired in 3Q 2013.
2. Surface ads, which first hit the airwaves in early-4Q 2012, have consistently scored higher than Microsoft’s other ads. Among all 12 Surface spots since the product’s launch, the worst performer was “No Reason” (478), which aired on February 10, 2013. The next worst performer was “Dance Mania”, whose Ace Score of 556 is some 38 points higher than the Microsoft’s non-Surface average Ace Score of 518. Overall, Microsoft’s Surface ads have achieved an average Ace Score of 578 (see the section “Rising to the Surface” below), a definite bright spot in the company’s recent advertising campaigns.
3. Bing ads have consistently underperformed other creative efforts from Microsoft. But this is largely a byproduct of the category – Websites has the lowest category norm among the five categories that Microsoft competes in. Looked at relative to the all-important category norm, Bing has modestly outperformed, averaging 498 across 18 ads vs. the seven-quarter Websites category norm of 483.
4. Microsoft has been noticeably quiet on the video game front in recent months. In fact, they’ve aired just one Xbox ad since April 2013, an NFL-themed teaser called “Xbox One” which aired on September 5^th. But we expect to see this trend reverse very soon. With Xbox One slated to hit the shelves on November 22^nd (Black Friday), it’s safe to assume that Microsoft will be very visible in the weeks ahead – as will Sony. In fact, the first ad for Sony’s new PS4 (“Perfect Day”) aired less than a week ago.
5. Microsoft didn’t air any Windows Phone ads in 2012 until the fourth quarter when WP8 was launched. Since then, the company has placed 16 Windows Phone spots, mostly highlighting the personalization features of the mobile OS, and the high-res camera on Nokia Lumia handsets. Speaking of Nokia, Microsoft’s €5.4 B acquisition of Nokia’s Devices & Services business, expected to close in 1Q 2014, may set the table for increased TV advertising for Windows Phone products next year and beyond.

Chart 2: Time Series of Microsoft Ads by Ace Score and Product Category

Rising to the Surface

Microsoft has aired nine unique Surface ads year-to-date, eight of which first aired before the company hosted its recent Surface 2 launch event on September 23^rd. For the most part, this year’s Surface ads have performed well, with an average Ace Score of 578 vs. the full-year Computer Hardware category norm of 549. The top-scoring Surface ad – and Microsoft’s highest-scoring ad year-to-date – is “Oh Snap” (643), which first aired on August 5^th. This ad was an Ace Metrix double-award winner, earning both ad-of-the-week Top Score honors, and also landing at #2 on 3Q’s highest scoring ads-of-the-quarter list. With the new – and higher priced – Surface 2 Pro scheduled to hit the shelves on October 22^nd, we expect to see additional Surface-centered creative coming out of Microsoft in the weeks ahead, talking up the features of their updated tablets. We note that Apple is scheduled to host a press event on the same day – widely rumored to highlight new versions of the iPad and the iPad Mini. With competition heating up in the tablet market, a slew of pre-holiday ads is a likely byproduct.

Highest Scoring Microsoft Ads 2013 Year-to-Date

Microsoft’s 10 highest-scoring ads year-to-date, based on gap to category norm, include spots for Surface, Windows 8, Xbox, and Windows Phone (see Table 1). Notably, none of Microsoft’s six 2013 Bing ads made the list. In fact, since the Bing-vs.-Google-comparison ad campaign kicked off with “Bing It On” in September 2012, Bing’s Ace Scores have tailed off, averaging 519 before (9 ads total), and 477 since (9 ads). On the flip side, Microsoft’s Windows 8 ads have been a bright spot. After a rough start in 2012, averaging 481, Windows 8 spots have rebounded this year with a 553 year-to-date Ace Score average.

Table 1: Microsoft’s Top Performing TV Ads (Gap to Category Norm), 2013 Year-to-Date

To watch all ads in the above list, click here.

Conclusion

With tectonic shifts continuing to reshape the technology landscape, Microsoft finds itself in unfamiliar territory. Far from being the dominant vendor, Microsoft is now the challenger, endeavoring to gain share in tablets, mobile, and search, among others. As we highlighted in our recent blog post “The Challenge of the Challenger”, there’s a certain irony in how Microsoft has turned the tables on the competitors who were once distant challengers to Microsoft’s dominance. We won’t speculate on whether Microsoft will achieve significant success in gaining share in new markets. But we can say that they appear to be making progress on the TV advertising front. Early stumbles (Windows 8) have been addressed. And feature-focused spots for Surface and WP8 have performed relatively well. The road ahead is long. But as 4Q unfolds, we’ll know a lot more about how well Microsoft’s new product campaigns are resonating with the American TV audience.