More on MSN entering the search-ad market

March 16, 2005

Increasing its efforts to compete with Yahoo and Google, Microsoft's Internet division (MSN) said yesterday that it plans to enter the very lucrative search-engine-advertising market.

Microsoft said it is building its own advertising network to display ads alongside its search-engine results.

The company's entrance into the fast-growing search-engine-advertising business -- worth $2.6 billion last year, by one estimate -- was widely expected.

MSN introduced its own search-engine technology in November, after years of using technology supplied by Inktomi. A system designed to couple ads with its search results was the next logical step.

The bulk of MSN's search advertising is currently supplied by another company -- Yahoo's search advertising division, formerly known as Overture Services, with the two companies splitting the revenues. Advertisers buy their text ads through Yahoo, and MSN distributes them on its site.

That partnership, which expires in 2006, will continue as MSN gradually phases in its own ad network.

Microsoft is aiming to distinguish itself from the Google and Yahoo ad networks by offering advertisers more detailed information about users who click on their ads. The company will cull this information from users who are registered on the MSN network and by observing their behavior and interests as they click from Web site to Web site.

That might allow an advertiser, for example, to recognize that a majority of clicks on its ads are from women or golf enthusiasts, and to adjust its ad campaigns accordingly.

``They're trying to take paid search to the next level. Because right now, a click-through on an ad is not enough for advertisers,'' said Andy Beal, vice president of search marketing for WebSourced, a search-engine marketing firm.

Microsoft is being conservative in its roll-out of the new system, dubbed ``MSN adCenter.'' The company will launch a pilot of the program in France and Singapore in the next six months, said Adam Sohn, director of global sales and marketing. He gave no timeline for a U.S. launch.

``That gives us an opportunity to learn a lot of interesting stuff about localization and how to deal with the scaling issues,'' Sohn said.

Supplying advertisers with detailed information about users moves MSN a step closer to a concept called ``behavioral targeting'' which is enjoying a resurgence in the ad world. The technique allows advertisers to try to serve their ads only to users who are most interested in them, based on their Web-surfing habits.

Advertisers will not be able to do that initially with adCenter. But Forrester Research advertising analyst Jim Nail said he anticipates the day when search-engine ads are triggered by a user's demographic information, such as gender, in addition to the keywords the person enters into the search box. The technology could also allow MSN to customize the ads it shows its Hotmail e-mail users.

``We're a few stages from that,'' Nail said. ``It's a very, very interesting view of the future. I think it's definitely going to cause ripples at Yahoo and Google and everywhere else.''

Apart from putting pressure on Yahoo and Google to innovate, the move by Microsoft will probably not have significant long-term financial effects on the two valley companies, experts said.

Marketers want to display their ads on as many high-profile search engines as possible, so most will probably not abandon Google or Yahoo in favor of MSN.

Yahoo will be affected most because it will lose its contract with MSN. But growth in the overall search-advertising industry should mitigate the effects of that, experts said.

Source: Silicon Valley.com

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