Microsoft Kinect Interactive Ads May Be Bad for Business

by Anthony John Agnello | June 26, 2011 8:28 pm

Microsoft (NASDAQ: MSFT[1]) is taking a new tack in monetizing its entertainment products: The company is banking on advertising that appears in video games on its Xbox 360 video game console.

NUads, as Microsoft is calling them, utilize the camera and microphone-based Kinect controller to make these new in-game ads interactive for users. Microsoft and its advertising partners are banking on the novelty of interacting with these peculiar TV and Internet ad hybrids as being enough to get users past the ad blindness that has made video game and intra-game console advertising so ineffective in the past.

The logic is sound. NUad features — such as allowing consumers to say “Xbox Tweet” to comment on advertisements through Twitter or “Xbox Near Me” to activate a map highlighting the nearest retailer carrying an advertised product — seem like just the kind of kitschy hook for getting an audience invested in a product. It won’t work though, and Microsoft should be very wary of alienating their customers right when its entertainment division is at the very peak of its power in the U.S.

The NUads reflect a broader trend in advertising, with advertising becoming increasingly invasive, particularly with Internet-connected devices like Microsoft’s Xbox and the Apple (NASDAQ: AAPL[2]) iPhone. As consumers have demonstrated their taste of multi-tasking, using handheld devices at the same time as watching television for example, advertisers are getting more and more desperate for their attention. There is good evidence that the more invasive and intense these advertisements are, the more likely they are to repulse consumers rather than entice them.

Two examples that should be seen as cautionary tales for Microsoft and the NUads program: AOL (NYSE: AOL[3]) is using new ad formats unveiled in 2010 and Apple iAd. AOL announced a host of new ad formats in September 2010 that could not have been more obnoxious if they tried, massive banners that accommodate video, photo galleries, social network functionality and the ability to examine products in a 3-D viewing mode that would also allow purchasing the product. These new ad formats were supposed to rehabilitate AOL’s flagging display ad business, but they haven’t helped much. The company continues to trail Facebook, Google (NASDAQ: GOOG[4]), Yahoo (NASDAQ: YHOO[5]), and Microsoft, controlling just 4% of revenue in the display ad market where it was at than 6% in 2009 (the year its business shrank to fraction of its former size.)

Apple’s iAds, the mobile advertising platform on the company’s Internet-connected handhelds like the iPhone and iPad, took the same approach as AOL. Interactive ads with dense video and interactive features were going to help Apple make mobile advertising a revenue generating force to be reckoned with. A February report from Techcrunch indicated that app developers on those devices said their iAd fill rates (the percentage of ad slots available in their products that actually have advertisements in them) had fallen to just 6%. There’s certainly an audience on those devices — Apple’s sold 25 million iPads and more than 100 million iPhones. If advertisers aren’t using iAds, it’s because they don’t work.

The kings of advertising online these days are Google and Facebook, which specialize in simple, non-invasive advertising. Many insiders see Facebook controlling the majority of all display advertising revenue by 2012, more than 19% of the market. Facebook’s pages are littered with small ad space, filled with products and services targeted specifically at users based on information in their profiles. There are no videos, few interactive elements. Microsoft isn’t the only one who should be treading lightly with its efforts to grab consumers’ attention. The whole advertising world should take note: Don’t get in the consumer’s face.

As of this writing, Anthony John Agnello did not own a position in any of the stocks named here. Follow him on Twitter at @ajohnagnello[6] and become a fan of InvestorPlace on Facebook.[7]

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