Microsoft announced today that they are going after the holy grail of advertising: integrated ROI measurement and tracking. The big problem with online ROI measurement that Microsoft is targeting is the inability to assign quantifiable value to brand advertising, e.g. banner ads, and which results in disproportionate value being assigned to search advertising — the “last click” which typically leads to a measurable actions like a purchase.

This is the holy grail because the biggest bucket of advertising dollars is still in offline brand advertising, e.g. TV commercials, and the big players — Google, Yahoo, Microsoft, et al — are all trying to drag those big brand dollars kicking and screaming online. Although billions of dollars are gleefully poured into offline brand ads with little or no quantifiable ROI measurement — certainly nowhere near what is possible with search advertising (AKA direct marketing) — the expectation is that when those brand advertising dollars shift online, they will suddenly become much more measurable.

The problem is that the “last click” before an online purchase is typically a search or other text ad, which get clicked far more often than banners and other brand ads (including video ads). Even advertising clients who have been die hard believers in the soft ROI of branding suddenly become obsessive click counters when their ads go online.

So Microsoft is trying to solve this problem with an integrated tracking system that ascribes value to the brand ads that a consumer sees before clicking on a text ad.

The end game of course is to convince advertisers to run all of their ads through Microsoft’s growing online advertising infrastructure (which they still hope will include Yahoo), so that they can consolidate all of the available user data — and thus all of the ad dollars.

What’s shaping up is a battle of the titans between Google and Microsoft for control of the big advertiser dollars as they shift online — and brand advertising ROI measurement is key.

Here are two observations on Microsoft’s announcement:

*1. It’s a black box *

Microsoft’s Engagement Mapping system announcement is VERY short on details — the proverbial “black box,” which has been a scourge of advertising measurement for years, because clients typically don’t trust what they can’t understand.

During the post crash years, I spent some time studying the econometric modeling approach to ROI measurement, sometimes called marketing mix modeling — it’s a form of regression analysis that attempts to establish causal relationships between advertising data and key client metrics. It’s powerful — and expensive — stuff, but most clients are wary because you need a PhD to understand how it works (literally, the people who do this stuff are PhDs).

Here’s what I mean by black box (via CNET):

Say a consumer sees an ad for a product in a video ad one day, and then clicks on a text ad to visit the retailer’s site the next day, and then eventually sees a banner ad that leads to a purchase. All of the monetary credit tends to go to the text link that was clicked on, says John Chandler, principal analyst for Microsoft’s Atlas ad serving division.

“Under our (Engagement Mapping) model, those will share the credit,” for example, with 40 percent each going to the video ad and the text ad and 20 percent going to the banner, he says.

And you arrived at those percentages how? Oh, don’t you worry your pretty little head about it… we just feed all the data into our big black “Engagement Mapping” box, crank this handle right here, and it spits out the answer. Remember, any sufficiently advanced technology is indistinguishable from magic — just tell that to the brand manager writing the eight or nine figure check.

2. It’s Microsoft

If you worked in advertising up until say the Google IP, it probably seems on the face of it totally nuts that companies outside of Madison Avenue should have the lead on seizing the holy grail. I mean, Microsoft is a SOFTWARE company, for crying out loud.

But the problem with advertising has always been that it was more art than science, when it should have been about dollars and cents. Google AdWords was so pioneering because it enabled many companies who couldn’t afford for advertising to be a cost center to turn their advertisng into a profit center.

When you think about it, it makes perfect sense that technology companies should take over the advertising industry. Nobody in Silicon Valley will win a Clio Award, but they will help clients get more than $1 back for every $1 of advertising they spend — and advertisers have always cared more about their bottom lines than Madison Avenue’s ego.