MSN takes on Google AdWords

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of its users because they divulged information when they registered for Microsoft services, like the Hotmail e-mail service and its Passport identity service.

Google and Yahoo currently allow only limited targeting of search ads by location. Yahoo, however, does offer advertisers more extensive ways to aim the graphical ads that appear on the nonsearch parts of its site to a user's demographic data and site surfing history. Google argues that it does not need to use demographic data to direct its advertisements, as traditional advertising requires, because Web searchers can directly indicate what they may want to buy through their search queries.

"We are very heavy on user privacy," said Tim Armstrong, the vice president for advertising at Google. "So our way of targeting advertising relies heavily on what we know about the content people are looking for." He added that Google does take other variables into account, like the time of day and the location of the user, but Google's technology does this automatically to make the process simpler for the advertiser.

While Google does not currently use personal data to direct placement of its ads, there is nothing in its privacy policy that precludes it from doing so, said Michael Mayzel, a Google spokesman.

Daniel L. Rosensweig, Yahoo's chief operating officer, said that it was exploring options for targeting search ads but had not introduced any yet.

Sullivan of Search Engine Watch praised the technical sophistication of Microsoft's approach and the level of information it plans to provide advertisers on the performance of their ad campaigns.

"They will definitely raise the bar on what Google and Yahoo have to provide," he said.

Though MSN hopes to best Google, it is imitating Google's ad structure in one significant way.

Google places ads on the search results page in order, based on which ad it thinks will produce higher revenue. That means an advertisement with a lower bid per click that gets clicked on much more often will be shown higher on Google's pages. Microsoft is copying that Google method, except that it is adding additional options to place separate bids for various demographic categories.

By contrast, Yahoo's system is based strictly on auction price - the advertiser that bids the highest amount for each time someone clicks on an ad is listed first. The second-highest bidder is listed second, and so on.

Mehdi said he did not know what the financial impact would be for Microsoft in switching from Yahoo's ad sales system to its own. If Microsoft's contract with Yahoo is typical for the industry, it already receives more than 80 percent of the revenue Yahoo receives for the ads sold on MSN search. If MSN attracts fewer advertisers and the bids for each keyword are lower than for the ads sold by Yahoo, its revenue could well drop.

He said that once Microsoft had a large number of advertisers and had refined its ad placement formulas, it would be able to compete with Google and Yahoo to sell ads on other Web sites because it would be able to offer higher ad revenue.

There is a virtuous cycle in this business, Mehdi said, because the more sites in an advertising network, the more advertisers are attracted and the higher the potential advertising prices. For Microsoft, running such a network has another benefit - the building of relationships with Web site owners, many of whom are users of its software and online services.

"Google uses its network to build adoption of its Web search," Mehdi said. "We can drive a deeper relationship with hundreds of thousands of small businesses out there."

Entire contents, Copyright © 2005 The New York Times. All rights reserved.

[t8]

Wow

One word ..... Innovation....

Where does Microsoft get these great ideas?

[t8]

Wow

One word ..... Innovation....

Where does Microsoft get these great ideas?