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Microsoft Preps For Google Fight

Redmond Claims The New MSN Search Engine is Finally Ready to Battle Google

Software giant arriving way late to the keyword search party.

Microsoft sales executive, Joanne Bradford, spent her early years at Micorsoft wondering if the software giant was truly serious about maximizing keyword search revenues.

When she joined Microsoft in 2001, Micorsoft lacked a search engine of its own and had no clear Web advertising strategy. Google and Yahoo proceeded to make multibillion-dollar businesses of search-related advertising while Microsoft slept.

"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 company."

These days, Microsoft is very serious about grabbing a larger piece of the $15 billion U.S. search market. Micorsoft has revamped the MSN search engine and also developed a new advertising system called MSN AdCenter to sell pay-per-click ads across MSNs Web content and related services.

Microsoft plans to overhaul its entire 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 is arriving years late to the keyword search party and faces a steep 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.

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

"I wouldn't be surprised if Microsoft could double (its online advertising revenue) in three to five years," said one independent research firm executive.

MSN TUNES-UP SEARCH ENGINE

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 keyword search, the largest segment for online advertising.

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

Yahoo (Overture) 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 MSN adCenter provides advertisers with demographic data to better target customers with projections about the search user's age, sex and location. Eventually, MSN wants to integrate projections about the user's wealth, preferences and online behavior patterns.

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

Microsoft envisions adCenter to one day be a one-stop shop for search advertisers to gather information as they bid for clicks and sponsor position for pay per click ads listed in MSN search results pages, 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 lot of years," said a search engine analyst.

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

Google finished January with 66 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." MSN's focus is to become a more profitable third player in the keyword search marketplace with aspirations of one day becoming an even more competitive and profitable number two to Google.

MSN made no comment regarding PPC Click Fraud Controls.