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MSN pours $100 million into Web ads

The online arm of Microsoft is investing $100 million in a new marketing division designed to plug online advertising on its network.

MSN, the online arm of Microsoft, is investing $100 million in a new marketing division designed to plug online advertising on its network.

Microsoft will spend $100 million over the next year on product research and marketing for the new program, called MSN Advantage Marketing, as well as launch sales and training efforts to recruit Fortune 500 advertisers and their agencies as partners, according to MSN director Bob Visse.

The underlying commitment mirrors other efforts by online media properties to diversify revenues and promote online marketing as a viable business.

Yahoo, for example, has built a division called Full Service that promotes a wide array of advertising, research and analysis tools for marketers, in an attempt to morph the company into an advertising consultant rather than just a media site. Through such efforts, Yahoo and MSN are in a race to build up relationships with advertisers and agencies as a means to create recurring revenue at a time when ad dollars are scarce.

"This represents a new focus from these portals to diversify their revenue streams," said Denise Garcia, research director for Gartner, adding that the No. 1 means to diversify sales was through business services.

The $100 million investment is also notable because Microsoft itself has reined in online ad efforts for software products in the past year, a signal that the software maker may not believe in the medium it is backing. Early on, the company was a pioneer in online advertising, testing new formats and heavily promoting MSN and Internet Explorer on the Web. The company has remained one of the largest advertisers on the Net. However, it previously cut efforts to promote its core software business on the Web.

The company has plans to spend more than $500 million to promote upcoming releases of its Xbox and Windows XP products.

Visse said the company doesn't break out numbers for marketing spending, but added that the mix between online and offline advertising is strong.

"If other consumer companies had the same mix we do for online vs. offline, the Web would have a huge amount of money," he said. "If Procter & Gamble changed the money it spends offline vs. online to our mix, it would be an avalanche of money." He added that it would be hypocritical of Microsoft to promote online advertising and not spend money on it for software brands.

Through its new program, MSN plans to sell advertisers on the networks' access to more than 250 million visitors and its more than 900 products as potential advertising placements. The company can also work with advertisers to engineer promotions on its various technology platforms such as Passport.

Microsoft plans to target the top 25 agencies for high-level partnerships within its Premier6 program. Digitas, an advertising agency, is its first partner. The partnerships will center on creating promotions "far beyond the banner and the button" to include new ad formats, consulting, targeting and analysis. Partners on this level will spend about $20 million annually with MSN, Visse said.

"From a high level, we're demonstrating our commitment to this business," said Visse, adding that MSN is "bullish on the market overall."

Making a splash
MSN also plans to launch a "next generation" of online advertising units in the next several weeks. It plans to sell a "splash page" ad--the equivalent of a full-page magazine ad--that will appear for several seconds as visitors load a page, for example. As part of the Marketing Advantage program, MSN will sell advertisers on tools for research and tracking advertisements, as well as the ability to update ads instantaneously.

The company has already been spending money on bolstering online advertising efforts. This summer, in partnership with the Interactive Advertising Bureau, it commissioned research that showed the Internet was effective for brand advertising.

Garcia said that through this program, MSN is opening a window for advertisers and clients to access Microsoft services, including software and corporate services. Similar to Yahoo's business services, this program "makes them an overall marketing partner; it helps supplement their advertising revenue and gets them closer to the client. The advertiser then sees them as a partner rather than a media site where they just place ads," she said.

But such a move could mean increased competition for Yahoo and others.

"MSN will be posing a big threat to Yahoo's business service offering because they have the brawn of Microsoft, which can help clients set up a corporate portal or enterprise system.

"Yahoo is a media company, and MSN is backed by a software company. MSN can introduce its clients to Microsoft's plethora of software and infrastructure options. Whereas, what can Yahoo do?" Garcia said.