Microsoft ad revenue tops $20 billion as Copilot transforms search

Microsoft's advertising business has crossed a significant revenue threshold, with the company announcing that its total advertising revenue across all businesses has surpassed $20 billion over the last 12 months. According to the earnings call transcript from April 30, 2025 (one day ago), this milestone comes as Microsoft continues to gain market share with its Bing search engine and Edge browser while incorporating AI capabilities into its advertising offerings.

During Microsoft's FY25 Q3 earnings call, CEO Satya Nadella highlighted the company's progress in transforming how people search, browse, and discover content using AI as a personal assistant. This transformation is reflected in the financial results, with the Search and news advertising revenue excluding traffic acquisition costs (TAC) increasing by 21% (23% in constant currency) compared to the same quarter last year.

The growth in advertising revenue significantly exceeded Microsoft's expectations, driven by "usage from a third-party partnership, better-than-expected rate expansion, and volume growth across Edge and Bing," according to Amy Hood, Microsoft's executive vice president and chief financial officer.

For the upcoming quarter (Q4), Microsoft expects search and news advertising ex-TAC revenue growth to remain strong in the "high teens," even against a strong prior year comparable. Overall search and news advertising revenue growth is projected to be in the mid-teens.

AI-powered search and advertising innovations

Microsoft is reimagining search and advertising through several AI-powered initiatives centered around Copilot, its AI assistant:

1. Copilot Search in Bing: This feature reimagines search results with overview pages curated by AI and embedded conversational capabilities.
2. Copilot Vision in Edge: This allows Copilot to see what users see and provide real-time responses while they browse.
3. Copilot Discover: Microsoft is personalizing the MSN experience based on user interactions and preferences.
4. Updated Copilot app: The company is focusing on building daily engagement and successful sessions across various modalities, including conversing, searching, shopping, and travel planning.

New advertising formats

According to Microsoft's quarterly product release document, the company has introduced new advertising formats specifically designed for the Copilot experience:

1. Microsoft Advertising Showroom ads: These provide "a rich and immersive experience where users can explore what they are searching for in the digital space," allowing users to interact with products in a way that closely mirrors visiting a physical showroom.
2. Dynamic Filters: This feature leverages the interactive nature of Copilot, "removing the friction of typing additional questions and quickly narrowing options more likely to drive conversions based on an individual's preferences."
3. App campaigns: These allow brands to leverage the reach of King and Microsoft Casual Games via the Microsoft Advertising Platforms. Brands can promote apps on games like Candy Crush across Android, iOS, and Windows, as well as in the Windows Start menu and the Microsoft Store.
4. Ads Studio: This AI-powered creative tool is built for performance marketers and leverages generative AI to create better-performing ads with ease. Initially launching in the Microsoft Advertising Platform, Ads Studio will be integrated across other platforms like Microsoft Invest DSP.
5. Copilot asset creation via API: This capability enables advertisers to leverage Copilot's asset generation across their preferred tools and workflows, including on the Microsoft Advertising Platform, Microsoft Advertising Editor, and via API.

Retail media innovations

Microsoft is also expanding its retail media offerings with two new solutions:

1. Curate for Commerce: This innovation enables retailers to leverage their first-party data and provide shoppers with targeted, relevant ads from non-endemic partners across the web. It allows retailers to drive incremental revenue with minimal investment while attracting advertisers beyond their traditional market.
2. Sponsored Promotions by Brands (SPB): This solution allows brands to engage shoppers across Microsoft Edge, Bing, and various retail partners' websites with personalized, data-driven experiences. The advertiser incurs no costs unless a shopper buys the promoted product, and advertisers can set one campaign to reach a broad network of retailers rather than setting up individual campaigns with each retailer.

LinkedIn marketing growth

LinkedIn's marketing solutions business is also contributing to Microsoft's advertising revenue growth. During the earnings call, Nadella mentioned that "LinkedIn Marketing Solutions continues to be the best way to reach B2B decision makers, with two consecutive quarters of accelerated revenue growth."

The professional networking platform continues to see strong user engagement, with over one billion professionals using LinkedIn to connect, learn, hire, and sell. Membership growth remains in the double digits year-over-year, with time spent watching videos increasing by 36% and comments up by 32% compared to the previous year.

Microsoft's Premium Pages offering for small and medium-sized businesses on LinkedIn saw over 75% quarter-over-quarter subscriber growth, indicating strong demand for enhanced marketing capabilities among smaller organizations.

Microsoft Monetize platform improvements

To help publishers and advertisers manage their advertising operations more effectively, Microsoft has updated its Microsoft Monetize platform with a new homepage and navigation to make it "cleaner and more accessible." The company has also integrated Copilot into the platform to help streamline troubleshooting, answer questions, and provide best practices.

Implications for marketers and advertisers

Microsoft's advertising growth and innovations have several important implications for the marketing community:

1. AI-powered search transformation: The shift toward conversational, multimodal search experiences through Copilot is changing how users discover information and products, requiring marketers to adapt their strategies beyond traditional keyword-focused approaches.
2. New ad formats and capabilities: Advertisers now have access to more immersive, interactive ad formats designed specifically for AI-driven search and browsing experiences, potentially offering higher engagement rates and conversion opportunities.
3. Retail media expansion: Microsoft's new retail media solutions provide additional channels for both retailers and brands to monetize first-party data and reach consumers across the shopping journey, further blurring the lines between advertising and e-commerce.
4. B2B marketing growth: LinkedIn's continued strength in reaching business decision-makers, combined with its expanding premium offerings for SMBs, provides marketers with enhanced tools for targeting professional audiences.
5. Creative assistance through AI: Tools like Ads Studio and Copilot asset creation via API suggest that AI will increasingly assist marketers in creating and optimizing ad creative, potentially reducing production time and improving performance.

While Google remains the dominant player in search advertising, Microsoft's growth in this area, combined with its AI investments and expanding portfolio of advertising solutions, positions the company as an increasingly important platform for digital marketers seeking diversification beyond Google's ecosystem.

Timeline

• April 30, 2025: Microsoft announces that advertising revenue across all businesses has surpassed $20 billion over the last 12 months
• Q3 FY25: Search and news advertising revenue excluding traffic acquisition costs grows 21% (23% in constant currency)
• Q3 FY25: Microsoft reports taking market share across Bing and Edge
• Q3 FY25: LinkedIn Marketing Solutions shows two consecutive quarters of accelerated revenue growth
• Q3 FY25: LinkedIn Premium Pages offering for SMBs sees over 75% quarter-over-quarter subscriber growth
• Q4 FY25 (projected): Microsoft expects search and news advertising ex-TAC revenue growth in the high teens
• January 2025: Microsoft launches Microsoft Advertising Showroom ads and Dynamic Filters designed specifically for Copilot
• Q1 2025: Microsoft introduces App campaigns for advertising across King and Microsoft Casual Games