Microsoft unveils ad system

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SAN JOSE, Calif. – For more than five years, Google has been hailed as king of Internet search and ruler of the universe of keyword advertising, towering over other tech titans, who tried, and failed, to cut the increasingly powerful company down to size.

Microsoft tried again Thursday when it launched adCenter, an online advertising platform it has been testing for the past seven months. AdCenter will provide advertisers with tools and targeting capabilities that are similar to what is offered by Google.

The new software could be crucial to Microsoft’s efforts to expand into new markets and ultimately, maintain its dominance as the world’s No. 1 software company.

“Ad-supported software services are an integral part of Microsoft’s plan to give consumers access to a broader variety of digital media, whenever they want and on whatever device they prefer,” Microsoft Chief Executive Steve Ballmer said in a statement released to the San Jose Mercury News on Tuesday.

Since 2001, Microsoft had relied on the technology of Overture Services to sell ads on MSN. Overture was bought by Yahoo in 2003, and its contract with Microsoft comes to an end in next month.

On Monday, Yahoo is expected to unveil an overhaul of Overture, in an attempt to compete more effectively with Google, according to a person familiar with Yahoo’s plans.

The rapidly expanding market for Internet advertising is at stake. According to eMarketer, a research firm, Internet advertising is expected to reach nearly $16 billion by the end of the year.

But analysts say improving advertising software may not be enough for Microsoft and Yahoo to catch up with Google.

Google handles nearly half of all search queries and is widely perceived to return more relevant results. The Mountain View, Calif., company raked in $6.1 billion in Internet ad sales in 2005, nearly half of the $12.5 billion in total spending. In comparison, Yahoo, which holds 22 percent of the search market, took in about $4.6 billion. MSN, which has 11 percent, took in $2.3 billion.

In addition, while Google and Yahoo’s advertising growth has been robust, MSN’s has been anemic, expanding only 7 percent in the last quarter compared with 34 percent for Yahoo and 79 percent for Google.

Microsoft is hoping that adCenter will change that.

Unlike Google and Yahoo’s current advertising software, adCenter lets advertisers create online campaigns that can target someone using the Internet by age, gender and geographic location. The program also lets advertisers pick the time of day they want ads to air.

For example, Miller Brewing Company could run a promotion targeted at young male college seniors at a particular university on Friday evening.

“It’s something that has really got advertising drooling,” said Chris Sherman, editor of Search Engine Watch, an industry newsletter.

Samir Patel, president of SearchForce, a San Mateo, Calif., company that helps advertisers manage large-scale online campaigns, said clients that have tested adCenter saw “pretty much higher profitability overall.” More people who clicked on their online ads were converted to paying customers than on Google or Yahoo, Patel said.

A study by WebSideStory, a provider of Web analysis tools, found that MSN ranked second to AOL with a customer conversion rate of 6.03 percent, compared to AOL’s 6.17 percent, in January.

Yahoo ranked third with 4.07 percent and Google was last with 3.83 percent.

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Ali Behnam, a senior consultant with WebSideStory, said the difference could be explained by demographics. “With portals rich in content and services, AOL, MSN and Yahoo may tend to appeal toward a more buyer friendly demographic. Google, meanwhile, may appeal to more browsers – those with less of an intent to buy.”

According to the Wall Street Journal, Microsoft has also considered the idea of acquiring a stake in Yahoo in order to better compete with Google.

Richard Holden, a director of product management at Google, said Google does take demographics into account by analyzing the audience of specific Web sites.

Holden said an advertiser who decided to target people of a certain age could leave out people who were either older or younger who would have been just as likely to buy the product.

“We feel the targeting capabilities we have today provide the best return on investment possible,” Holden said.

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Ellen Siminoff, chief executive of Efficient Frontier, an Internet-focused advertising agency that manages campaigns for large online advertisers, praised adCenter’s design and functionality, but said what her clients want are asking for is “more volume, more volume, more volume.”

“I don’t think demographic targeting by itself is enough,” said Mark Mahaney, Citigroup analyst. “I’d be looking for signs that major ad spenders are shifting campaigns away from Google and Yahoo going to Microsoft.”



(c) 2006, San Jose Mercury News (San Jose, Calif.).

Visit MercuryNews.com, the World Wide Web site of the Mercury News, at http://www.mercurynews.com.

Distributed by Knight Ridder/Tribune Information Services.

AP-NY-05-04-06 1758EDT

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