March 15, 2005 9:58 AM PST

MSN to challenge Google, Yahoo ads

Microsoft on Wednesday plans to introduce a pilot program to sell sponsored search listings, according to sources familiar with the matter.

The software company has long sold "featured" listings in its search results, but has defaulted to partners including Yahoo-owned Overture Services to supply the lion's share of its search-related ads. Late Wednesday, the company is expected to unveil details of a plan to sell its own keyword-search ads, in a first step to owning a commercial search network to rival those of Google and Yahoo.

However, Microsoft does not plan to immediately discontinue its partnership with Overture, according to a source familiar with the plan. For the last several years, Overture has supplied the sponsored search listings adjacent to and above MSN search results, a partnership that has helped buoy profits of the Internet property. The deal is slated to end in June 2006.

For the last two years, Microsoft has been bullish on plans to build a search network to best Google's. Already this year, the company replaced Yahoo's Inktomi search technology with its own homegrown software. But Microsoft's designs for a keyword-bidding system--the money engine of search--have been played down in the last year while the company perfected its search technology.

Its development also suffered a setback in early 2004, when Paul Ryan, a key hire from Overture, left. Ryan was in charge of building the monetary engine of MSN's emerging search engine.

Still, sales from search-engine marketing have driven widespread development and experimentation in the industry. Paid search is expected to be worth between $4 billion and $5 billion this year. And Microsoft has said it wants to own its revenue in this arena, instead of share it with partners. The company on Tuesday declined to comment on its plans.

But Internet analysts viewed the move as largely positive.

"In larger terms, Microsoft developing into the third major paid online search advertising platform is likely to support market growth as Global 2000 corporate clients find additional keyword inventory available," Internet analyst David Garrity, of Carris and Company, wrote in a research note.

 

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