TELECOM Digest OnLine - Sorted: Microsoft Takes on Yahoo and Google for Ad Dollars

Microsoft Takes on Yahoo and Google for Ad Dollars

Daisuke Wakabayashi (
Mon, 13 Mar 2006 12:20:57 -0600

By Daisuke Wakabayashi

Microsoft Corp.'s top saleswoman for Web advertising, Joanne Bradford,
spent her first few years on the job secretly wondering if the
software giant was serious about cashing in on the Internet.

When she joined Microsoft in 2001, the company lacked a search engine
of its own and had no clear Web advertising strategy. Google Inc. and
Yahoo Inc. made multibillion-dollar businesses of search-related
advertising while Microsoft waited.

"I wasn't sure the first couple of years that we were here to stay,"
said Bradford, Microsoft's corporate vice president for global sales
and marketing. "I thank Yahoo and Google for proving that a software
company can be a media company and a media company can be a software

These days, Microsoft is very serious about grabbing a larger piece of
the $15 billion U.S. market for Internet advertising with a revamped
search engine and a new system called adCenter to sell pay-per-click
ads across the company's Web content and services.

Microsoft plans to overhaul its Web presence, consolidating e-mail,
instant messaging, online PC security and search at its Windows Live
site along with new offerings like an online marketplace in order to
increase traffic and create valuable space for advertisers.

However, the company faces an uphill climb.

Microsoft's MSN Internet unit generated $1.4 billion in online
advertising revenue in its past fiscal year, while Google pulled in $6
billion in sales and Yahoo racked up $4.6 billion in 2005.

The company's strategic push combined with a steadily growing Internet
advertising market -- expected to reach $26 billion in 2009, according
to Forrester Research -- should boost Microsoft's online advertising

"I wouldn't be surprised if Microsoft could double (its online
advertising revenue) in three to five years," said Matt Rosoff, an
analyst at independent research firm Directions on Microsoft based in
Kirkland, Washington.


Analysts caution Microsoft trails Google and Yahoo in producing
relevant results from its search engine and unless it can close that
gap, it will be difficult to gain market share in search, the largest
segment for online advertising.

Like Google and Yahoo, Microsoft lets advertisers, through adCenter,
bid how much they will pay each time a user clicks on their ad. Until
recently, all the ads on Microsoft's search service were sold by

Yahoo still sells three-quarters of Microsoft's paid search ads, while
the company tests adCenter in the United States. It plans a full
switch to adCenter in the next few months.

Microsoft officials said adCenter provides advertisers with
demographic data to better target customers with projections about the
search user's age, sex and location. Eventually, the company wants to
integrate projections about the user's wealth, preferences and online
behavior patterns.

Backed by registration information obtained from 230 million e-mail
accounts and 205 million instant messaging users, Microsoft said that
database allows it to provide more accurate projections than Google or

Microsoft envisions adCenter to one day be a one-stop shop for
advertisers to gather information then buy ads on search results,
Microsoft-related sites and services, non-Microsoft sites, mobile
phone software or even online Xbox video games.

"We're really starting to see Microsoft gear up. Of course, the
company was asleep at the wheel for a long time," said independent
search engine analyst Chris Winfield.

One major hurdle is that ads placed on Microsoft's search results
reach only a fraction of those from Google and Yahoo.

Google finished January with 48 percent of the U.S. search market,
trailed by Yahoo at 22 percent and MSN at 11 percent, according to
Nielsen//Net Ratings. Microsoft stressed that online advertising is
not a zero-sum game.

"The online advertising market is growing at such a rapid pace and we
want to participate in some of that," Microsoft's Bradford said. "This
isn't a winner-take-all proposition."

Copyright 2006 Reuters Limited.

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