Microsoft Launches Paid Search Service Overseas

Bidding to enhance its ability to compete with Google (Nasdaq: GOOG) and Yahoo (Nasdaq: YHOO) in the revenue-generating part of the search marketplace, Microsoft (Nasdaq: MSFT) unveiled a paid-search service of its own, one that seeks to take targeting of ads to a new level.

Microsoft's MSN formally launched the service, known as adCenter, in France and Singapore, though analysts say a broader rollout will likely come quickly. Microsoft said it would begin testing adCenter in the U.S. next month and analysts believe that within a year, MSN will be cutting ties with Yahoo, which currently provides its paid search results.

Demographic Search Ads

What makes the Microsoft service unique may also help make it controversial. By using data collected as people register as members of its MSN portal, Microsoft will enable advertisers to target search ads based on demographic data such as age, gender and geographic location. The service will also use the traditional keyword marketing approach, which will help fill gaps when no demographic data is available. And Microsoft emphasized that any data used will protect a user's privacy and anonymity.

Microsoft Vice President Yusuf Mehdi said advertisers have given plenty of positive feedback to Microsoft during pre-launch testing.

He called the overseas launches a "great first step to delivering on our global vision to connect advertisers to consumers in a much more meaningful way."

Targeting the Targeters

Microsoft is aiming its product at interactive advertising firms that are looking for a higher level of sophistication when it comes to online marketing. Though paid keyword search listings have been a huge boon to search companies and online marketing in general, marketers are always looking for ways to better refine their messages and to reach ever-more specific audiences.

"adCenter is helping us apply more flexibility and control in our paid-search advertising campaigns because it gives us the tools to learn so much more about the kind of people who are searching on MSN," said Stuart Larkins, vice president of Search for Performics, a division of DoubleClick (Nasdaq: DCLK), which participated in the test.

The adCenter service will also offer up-front estimates on how much a campaign will cost an advertiser as well as analysis of traffic and click-through data. The goal, Mehdi said, is for adCenter to become a "one-stop shop from which advertisers can manage all their MSN advertising campaigns, end to end, including display and direct ads."

Cutthroat Competition

Once it's ready for full-scale launch in the U.S., adCenter will cause some tectonic shifts in the paid-search marketplace. Not only will it arm Microsoft with a way to derive revenue directly from search and contextual ads, but it will likely mean the demise, at least eventually, of MSN's relationship with Yahoo Search Marketing.

That unit has been providing paid listings to MSN since before Yahoo bought it -- it was known as Overture at the time -- and reportedly has a contract in place through next year.

But most analysts said the Microsoft rollout was necessary given the rise of Google and may indicate a broader plan to answer the search giant in the future.

In the past, noted Forrester analyst Charlene Li, efforts by Yahoo, Microsoft and others to match Google did just that -- brought the competitors up to Google's level. Microsoft appears to be trying to break that trend by offering a service that could have significant added value to advertisers.

"It's been rare for Google to be in the position of having to play catch up or respond to what a competitor has done," Li added.