MSN Launches Sponsored Ads on Search Site

Having rolled out its own search engine in a bid to match rivals Yahoo and Google in terms of technology, Microsoft is now hoping to duplicate their success in the revenue and profit arenas by launching a paid search product.

MSN Search is hoping that the use of collected demographics information will help its advertising product, known as adCenter and currently existing only in prototype form, stand out against Google’s AdWords and the paid services that Yahoo’s Overture unit offers.

User Information

MSN plans to use demographic information about users who have signed up for MSN products such as Hotmail to help advertisers reach their target audience more effectively. Ads can be filtered based on the gender, age and other general information about a user. Personal identifying information is not included in the data dump.

MSN Search currently uses paid results from Yahoo, meaning that MSN has shared revenue from the service with its rival. The current agreement runs out in 2006, by which time Microsoft will likely be finished with testing in overseas locations not covered by the Yahoo deal. AdCenter market tests will begin in Singapore and France within six months, the company said.

Microsoft believes the technology will not only help it compete against the other major search providers but will also put it in a strong position to be a key advertising partner as more entertainment media, including television shows, make their way onto the Web.

“We can use the same backends that are used to deliver targeted advertising on the Internet to deliver targeted advertising to somebody who is watching television,” Microsoft CEO Steve Ballmer said yesterday.

Microsoft announced the service at its annual meeting for marketers. The Strategic Account Summit, as the event is known, is where Ballmer admitted last year that Microsoft waited too long to begin developing its own search technology.

Aiming for Bull’s Eye

Since then, Microsoft has aggressively pushed its own MSN Search to market, first in beta form and earlier this year in full market format. The search tool has debuted to mostly favorable results, but many analysts say it might not be enough by itself for Microsoft to significantly erode the market share and so-called mind share that Yahoo and Google amassed before MSN Search debuted.

“Google established a strong position in the minds of consumers,” Keynote Systems director of research and public services Dr. Bonny Brown told the E-Commerce Times. “Given the open nature of the Web, other sites will undoubtedly begin to attract more users and improve user loyalty as they improve their services.”

While differentiation for users is important, Microsoft is hoping that targeting will help it set its search engine apart for advertisers.

The store of data that MSN controls could help companies buying ads to send only those that it expects will be relevant to users. For instance, a car company could ask MSN to send different paid listings to users depending on whether they are men or women, or different ads for older users versus younger ones.

That same data pool is likely to also draw criticism from privacy groups. Though the information can not be used to identify a user, such groups have been critical of Microsoft’s collection of it in the past.

Three of a Kind

Paid search is likely to become just one of myriad fronts on which the major search engines battle for supremacy, along with niche areas such as local search, mobile search and vertical search technologies for specific media such as music or video.

While Ask Jeeves has held its ground as the fourth-largest search engine, a growing number of new players is crowding into the scene as well.

A growing number of analysts feel that it won’t be necessary for Microsoft to dethrone Google or overpower Yahoo to be a major player in the search industry. Many feel that three sites is a good number to share in what Jupiter Research currently estimates is a US$3.2 billion market for paid search marketing this year, a market that will post strong growth for the next four to five years.

In fact, given its sheer size, its brand recognition among consumers and businesses — including those who buy paid search listings — Microsoft could help spur growth in the market, analyst David Garrity, of Carris and Co., said.

“Microsoft developing into the third major paid online search advertising platform is likely to support market growth as Global 2000 corporate clients find additional keyword inventory available,” Carris wrote in a research note.