Microsoft jumps into paid search ad competition

Ballmer announces beta of service at Strategic Account Summit

Microsoft jumped into the paid-search online advertising world Wednesday with the introduction of the beta of MSN adCenter, which will provide advertisers with demographic usage profiles linked to keywords.

Microsoft CEO Steve Ballmer unveiled the program at the company's Strategic Account Summit, an event that covers online advertising.

"(MSN adCenter) is an option-based search technology for advertisers from small to large," Ballmer said. "It will be a way to buy, one stop across everything in MSN … with great intelligence, great targeting."

Microsoft is drawing on technology already in place from other applications, including Hotmail, to develop adCenter, said Yusef Mehdi, a senior vice president at MSN, who also spoke at the show.

"We've done something that's pretty unique with our technology," Mehdi said. "We've … taken the breadth of information we know about our customers on MSN, through registration data when people sign up for a Hotmail account, or an instant message account, or they customize their homepage. We enrich that data through third-party sources, so that we can overlay wealth index and demographic information, and then we map that to the keywords."

For its paid search program, Microsoft will provide advertisers with demographic usage profiles tied to keywords, including users' geographic location, gender, and age group, as well as the time of day when queries were submitted, Karen Redetzki, a product manager at Microsoft's MSN Internet division, told the IDG News Service.

For example, Microsoft will be able to identify the most searched-for keyword by males between the ages of 18 and 24 in New York City between 5 pm and 7 pm EST, Redetzki said.

This information is collected from users who register with Microsoft's Passport program, but it isn't used to identify individuals, meaning users' online activities will remain private, Redetzki said. Passport is a service that lets users enter the same log-in information to access any participating Web site, saving users from having to remember multiple user names and passwords.

This demographic data Microsoft plans to provide to paid-search advertisers goes a step beyond what is available to them currently, and will open the search engine marketing field to new possibilities, Gary Stein, a Jupiter Research analyst, told the IDG News Service. "Exposure to that level of data and its potential uses is very interesting," he said.

Although Google, Yahoo, and others have established themselves in paid search ahead of Microsoft, the Redmond, Washington, vendor isn't late to the party, Stein said, because this market is new. "Search as a vibrant marketplace is only about two years old," he explained.

Until now, Microsoft has relied on Yahoo's Search Marketing Solutions division (formerly called Overture) to supply its paid search ads, according to the IDG News Service. Microsoft, however, wants to have its own program developed in-house from scratch and tailored to its MSN content and services, which draw about 385 million unique users every month worldwide to MSN sites such as the portal, Redetzki said. "Overture continues to be a very valuable partner for MSN. They are delivering (services) beyond paid search to us," she said.

Ballmer said Microsoft wishes to maintain partner relations with Yahoo, although the path is not yet clear.

"People ask, ‘what does this mean about your relationship with Yahoo and Overture?’ We still see opportunities to partner there. We're having discussions," Ballmer said. "But we think it's also important that even while we maintain what has been a very good partnership, I think, for both companies, there are places where we have ideas to innovate. So we want to bring you our innovations, and then try to weave that in context with whatever we do with our partners. This is innovation and technology developed here, at Microsoft, from the ground up, which I think should be proof positive of our commitment to apply our innovation to the problems and opportunities that you face as advertisers."

The landscape for paid online search remains open with all parties innovating to gain advantage, said Michael Osterman, president and founder of Osterman Research.

"If you look at Web advertising, click-through rates tend to be very low, so anything you can do to increase the click-through rate is going to be very effective," Osterman said. "MSN adCenter may allow more Websites to charge more revenue per ads."

Copyright © 2005 IDG Communications, Inc.