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MSN takes on Google AdWords

The Microsoft unit launches AdCenter in France, and plans to test out the paid-search ad system in the U.S. next month.

In a move that counters Google's successful advertising programs, Microsoft's MSN unit on Monday launched its own paid-search advertising program in France and said it plans to begin testing the system in the United States next month.

MSN AdCenter, which debuted in Singapore at the end of last month, allows advertisers to launch highly targeted online keyword search-based campaigns, with the ability to include or exclude target customers based on geographic location, gender and age, and to run ads only during certain times and days.

The system competes with Google's AdWords program and will eventually replace a keyword-based advertising program that MSN contracts out to Yahoo. It has a simple user interface and is notable for its use of customer profiling, taking advantage of the data MSN gathers from its more than 9 million subscribers.

"With the competing products, you buy a word. On ours, you go into detailed level and see who is searching for words," said Eric Hadley, senior director of advertising and marketing at MSN. "You can plan an (ad) buy based on the people and say, 'I'm willing to pay this much for this demographic, and I don't want these people in the mix.'"

"They have a sizable amount of traffic. Advertisers will want to reach that audience, and buying through MSN is going to be the only way to do that."
--Danny Sullivan, editor, Search Engine Watch

MSN AdCenter provides expected profiles of customers who are most likely to search for specific keywords and offers cost estimates for budgeting purposes as well as analytic data that show how the campaign performed, including click-through rates. MSN boasts more than 420 million unique visitors each month.

MSN plans to eventually expand its service to allow advertisers to launch targeted display ads on Web sites, which would compete with Google AdSense, Hadley said.

Jennifer Stephens, a spokeswoman for Yahoo, which acquired keyword-based advertising pioneer Overture Services, said Yahoo's contract with MSN expires in June 2006 but declined to comment on the MSN relationship beyond that.

Google declined to comment for this article. (Google representatives have instituted a policy of not talking with CNET reporters until July 2006 in response to privacy issues raised by a previous story.)

An executive at Ask Jeeves, which was recently acquired by InterActiveCorp (IAC) and launched its own keyword-based ad program about two months ago, said the company wasn't worried about competition from MSN, partly because advertisers can reach different customers on the various portals and search Web sites.

"Based on the last round of Nielsen data, it looks like we only have 13 percent audience duplicationm on averagem between us and the other sites," said Paul Gardi, executive vice president and general manager of IAC Advertising Solutions. "Microsoft is talking about demographic profiling, which is interesting, but from our perspective, we are not doing it right now because we have issues with privacy."

MSN's Hadley said the AdCenter service does not provide advertisers with any data that can be traced back to a specific person.

"We get information from registered users, behaviors that aren't personally identifiable. Also, (we are) mapping with third-party databases, like household income combined with reverse IP (Internet Protocol) lookup to see what area the user comes from," by ZIP code, he said. "We probably have higher privacy standards for ourselves than the industry does."

Two search engine industry experts said MSN's large user base and early reviews are indications that AdCenter will do well.

"I think MSN has some features advertisers will gobble up, but it's too early to say whether it will be a superior experience," Danny Sullivan, editor of Search Engine Watch, wrote in an e-mail response to questions. "They have a sizable amount of traffic. Advertisers will want to reach that audience, and buying through MSN is going to be the only way to do that."

At least one consumer has posted a

"But only time will tell," Schwartz wrote in an e-mail. "I am sure they will start off slow and buggy. But they should be able to catch up to the competition soon. Plus, they have the tools to be more successful in the near future."

The news is only the latest in the software giant's plans to rely more on advertising. Microsoft also plans to offer more advertising-related software, particularly now that MSN is being folded into the platform development group, Hadley said. For example, the company already sells a version of Microsoft Money that has advertisements in it, he said.

Hadley said he also envisioned a marriage between advertising and games. For example, Xbox Live customers could upgrade to a faster virtual car by agreeing to put a company's logo on the car in the online races, he said.

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 argues 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.

"We are very heavy on user privacy," said Tim Armstrong, the vice president for advertising at Google. "So our way of targeting advertising relies heavily on what we know about the content people are looking for." He added that Google does take other variables into account, like the time of day and the location of the user, but Google's technology does this automatically to make the process simpler for the advertiser.

While Google does not currently use personal data to direct placement of its ads, there is nothing in its privacy policy that precludes it from doing so, said Michael Mayzel, a Google spokesman.

Daniel L. Rosensweig, Yahoo's chief operating officer, said that 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.

Though MSN hopes to best Google, it is imitating Google's ad structure in one significant way.

Google places ads on the search results page in order, based on which ad it thinks will produce higher revenue. That means an advertisement with a lower bid per click that gets clicked on much more often will be shown higher on Google's pages. Microsoft is copying that Google method, except that it is adding additional options to place separate bids for various demographic categories.

By contrast, Yahoo's system is based strictly on auction price - the advertiser that bids the highest amount for each time someone clicks on an ad is listed first. The second-highest bidder is listed second, and so on.

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 receives 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.

He said that once Microsoft had a large number of advertisers and had refined its ad placement formulas, it would be able to compete with Google and Yahoo to sell ads on other Web sites because it would be able to offer higher ad revenue.

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."

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