Microsoft announced this morning the creation of a new proprietary paid search solution that will become part of the MSN adCenter. The MSN Paid Search solution marks the next step in Microsoft's attempt to provide a serious challenge to Google and Yahoo! in the search market. After the launch of their own search index and algorithm last fall, MSN still relied on paid search ads from Yahoo! owned Overture. Most within the industry agreed that it was only a matter of time until Microsoft's team came up with a plan to launch an alternative to AdWords and Overture.

With Jupiter Research projecting that paid search will reach the $5 billion mark by 2008, keyword based advertising has become a huge revenue generator. With MSN's search product already holding over a quarter of the market, Microsoft has plenty of ad inventory available to sell. While Microsoft profits from their current partnership with Overture, a proprietary paid search solution would allow MSN to keep a bigger piece of the pie and would go a long way toward recouping the costs incurred by MSN in the development of their own organic search solution.

Microsoft's current agreement with Overture is set to expire in June of 2006 and industry watchers expect that Microsoft will have finished testing the product and will be ready for launch in the United States. (Microsoft plans to test the product in Singapore and France for at least six months.)

One of the potentially unique aspects of Microsoft's paid search program is its ability to offer more specific targeting of the ads. Through the use of IP data and its own database of personal user information, Microsoft could take keyword based advertising to the next level. Microsoft has the ability to track personalized data such as age, gender and location from users that log on to use its free Hotmail e-mail program or from calculating data such as the average income of a particular zip code.

It's this personalized filtering option that it likely to make Microsoft most attractive to both new and existing paid search advertisers. After all, neither Google nor Yahoo! currently allows keyword advertisers to display different ads to men and women, or to people in different zip codes. The possibilities of such advertising are endless. Home builders could display entry level housing to searchers from lower income zip codes and high end custom home ads to users from more affluent areas. Ads for the same product could be customized to appeal to men or women, or to young searchers as opposed to senior citizens.

Microsoft has also said that the reporting offered to customers of its paid search offering will also have access to reporting features that track this same data. Reports will allow users to see if a higher percentage of men or women visited an ad, along with the success rates of a single ad in various geographic locations. With these reports allowing for further refinement of a campaign, advertisers may find themselves dealing with the potential for much stronger ROI than they currently receive with traditional paid search advertising through companies like Google and Yahoo!.

The move hasn't gone unnoticed in the investment world either. In a statement issuing an "outperform" rating for Microsoft, Goldman Sachs had the following to say about the move, "We believe that the rollout of the monetization engine is strategically important for MSN to capture a bigger share of the fast-growing paid search ad market," said Goldman. "Microsoft currently lacks a keyword auction bidding technology, whereby advertisers can bid on certain keywords, with the cost of each keyword being dependent on market demand and is charged on a click-thru basis." The statement went on to explain that "Building its own monetization engine would therefore allow Microsoft to capture more of this revenue itself, and eliminate Overture as the middleman. Revenues could decline initially since Overture has a more developed (and wider) network of advertisers, even though Microsoft might pick up 100% of their revenues versus a net 75% to 80% with Overture."

So what does this news mean to the small business market? Well, for starters, it means increased ad inventory for keyword buyers. Along with the potential benefits of Microsoft's ad targeting technology will come the simple benefit of having a new outlet with which to reach buyers. On the down side, bid prices are likely to level off at similar prices to what currently exist on the Google and Yahoo! networks, so advertisers may find themselves spending the same amount of money for the same amount of clicks, but spending more time managing campaigns.

Individuals interested in learning more about the MSN Paid Search Solution can sign up to receive notices and information via email at the MSN Advertising web site.

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March 16, 2005

Jennifer Laycock is the Editor of Search Engine Guide, the Social Media Faculty Chair for MarketMotive and offers small business social media strategy & consulting. Jennifer enjoys the challenge of finding unique and creative ways to connect with consumers without spending a fortune in marketing dollars. Though she now prefers to work with small businesses, Jennifer’s clients have included companies like Verizon, American Greetings and Highlights for Children.

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