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A Microsoft Response on Search Engine Ads System Aims to Sharpen Marketers' Aim

Posted on: Tuesday, 27 September 2005, 12:00 CDT

By Saul Hansell

Microsoft was to unveil Monday its own system for selling Web advertising, as it struggles to compete with Google and Yahoo in the expanding Web search business.

The system, to be used by MSN, is meant to improve on those of Microsoft's rivals by allowing marketers to aim ads on Web search pages to users based on their sex, age or location.

The move is part of Microsoft's broad response to the threat from Google, which is using its powerful advertising sales network to support an expanding range of free software products and Internet services. Last week, Microsoft announced a broad reorganization that placed MSN in the same group as its Windows operating system, indicating that it saw software delivered over the Internet and possibly paid for through advertising as central to its future.

But to offer such advertising-supported services, Microsoft needs to control its own system for selling targeted advertising. Until now, the ads on MSN's search service have been sold by Yahoo.

Yusuf Mehdi, a Microsoft vice president, said the company's service would have greater appeal to advertisers and ultimately would make more money for Microsoft. "We know we have to compete hard for our business," he said. "And we think we will offer advertisers better value because of the superior information we have about our audience."

Microsoft's entry into this business is getting an unusually warm reception from the advertising agencies that specialize in search marketing.

"They definitely have a market, because they have the traffic," Danny Sullivan, the editor of the Web publication Search Engine Watch, said of MSN's search business. "Search marketers can't seem to get enough traffic. I don't know anyone who is not going to try MSN."

Microsoft all but ignored Web searches until Google had established its technology and brand. It was not until this spring that MSN began using its own technology, replacing technology it had bought from Inktomi. Independent tests show that Microsoft's ability to find Web pages that relate to search queries lags that of Google and Yahoo, a gap that Mehdi says he is working to close.

Microsoft hopes its new advertising system will match many of the features of Google's system, which is generally seen as more advanced than Yahoo's, and add a few innovations. The most significant advancement in the MSN technology is its ability to direct ads to viewers according to demographic characteristics, as well as by the day and time the ad is shown.

For example, men searching for "roses" might see ads for florists' Web sites, while women may see gardening-supply store ads.

Microsoft will start using the system to sell ads on its Web sites in Singapore and France. It will phase in the system in the United States, using its own ads on some pages and ads sold by Yahoo on others, starting in October, said Joseph Doran, MSN's senior director of monetization. The company hopes to replace the Yahoo ads entirely by next spring.

Microsoft plans to try offering some of its software products in free versions that will display advertising sold by the new system, Mehdi said. He declined to say which products would be offered but said they were likely to include games and other consumer products.

The company will also sell ads that may appear on video games played on the Xbox game console and perhaps on its software that runs on cell phones and television sets.

Microsoft also expects to use its new system to sell ads on other Web sites, just as Yahoo and Google do with their systems.

The MSN system, like other search-based ad systems, will let advertisers specify how much they will pay each time a user clicks on their ad. MSN will also let advertisers bid different amounts depending on the characteristics of the user who sees the ad.

Microsoft knows about the characteristics of many of its users because they divulged information when they registered for Microsoft services, like the Hotmail e-mail service and its Passport identity service.

Google and Yahoo currently allow only limited targeting of search ads by location. Yahoo, however, does offer advertisers more extensive ways to aim the graphical ads that appear on the nonsearch parts of its site to a user's demographic data and site surfing history. Google contends that it does not need to use demographic data to direct its advertisements, as traditional advertising requires, because Web searchers can directly indicate what they may want to buy through their search queries.

Daniel Rosensweig, Yahoo's chief operating officer, said it was exploring options for targeting search ads but had not introduced any yet.

Sullivan of Search Engine Watch praised the technical sophistication of Microsoft's approach and the level of information it plans to provide advertisers on the performance of their ad campaigns.

"They will definitely raise the bar on what Google and Yahoo have to provide," he said.

Mehdi said he did not know what the financial impact would be for Microsoft in switching from Yahoo's ad sales system to its own. If Microsoft's contract with Yahoo is typical for the industry, it already receives more than 80 percent of the revenue Yahoo generates for the ads sold on MSN search. If MSN attracts fewer advertisers and the bids for each keyword are lower than for the ads sold by Yahoo, its revenue could well drop.

There is a virtuous cycle in this business, Mehdi said, because the more sites in an advertising network, the more advertisers are attracted and the higher the potential advertising prices.

For Microsoft, running such a network has another benefit the building of relationships with Web site owners, many of whom are users of its software and online services.

"Google uses its network to build adoption of its Web search," Mehdi said. "We can drive a deeper relationship with hundreds of thousands of small businesses out there."

Source: International Herald Tribune

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