Microsoft CEO Steve Ballmer is expected to show off a new paid-search service on Wednesday that will eventually go toe-to-toe with rival Google and supplant partner Yahoo's advertising.
As previously reported, Microsoft's Internet group is developing a pay-per-click ad-bidding system that pairs search results with sponsored text messages from advertisers. Yahoo's Overture Services currently supplies MSN with sponsored search links, which complement MSN-sold "featured sites."
But the new MSN service, called AdCenter and set to roll out in Singapore and France in the coming months, will bump Overture ads in the long run and let MSN own a major source of its advertising revenue. (Microsoft splits fees collected from marketers with Overture.)
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What's new: MSN is set to show off its version of a system for selling text ads linked to search queries and results, a direct challenge to market leaders Google and Yahoo.
Bottom line: Microsoft's Internet group is hungry for a bigger piece of the multibillion-dollar ad business related to search, and the new service will eventually allow it to jettison a deal with Yahoo's Overture Services. That agreement provides ad revenue but requires MSN to split the money with Yahoo.
Microsoft does not have a specific date for a U.S. launch, but it envisions operating the ad network globally, said Adam Sohn, an MSN spokesman.
"Call this the third leg of the search stool," said Sohn. "First, we introduced algorithmic search, then desktop (search), which is still in beta, and now the advertising platform."
With the product, Microsoft will move into the mother lode of a multibillion-dollar ad business dominated by Google and Yahoo. Search-engine marketing is expected to be worth as much as $5 billion this year, and nearly $9 billion annually within four years, according to Jupiter Research. Microsoft's piece of the pie is smaller than the shares enjoyed by market leaders Yahoo and Google, and the software giant is hungry for more.
Google fields 35.1 percent of the searches online, followed by Yahoo at 31.8 percent and MSN at 16 percent, according to ComScore QSearch. If the number of searches translates to the percentage of the ad market, MSN generates roughly $1.6 billion annually from search, minus the portion shared with Overture.
MSN's product is far from fully baked, according to Sohn, but it could eventually crowd rivals, search engine watchers say. Given that there is a finite number of searches conducted on the Internet, and hence a limited number of opportunities to display search-related ads, MSN will grab ad dollars away from Yahoo and Google, they say. According to data from ComScore QSearch, there were roughly 4.9 billion search queries in the United States during the month of January.
"The big pie of searches out there isn't getting any bigger" because of MSN's ad platform, said industry expert Danny Sullivan. "All that's
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Microsoft's Internet group is hungry for a bigger piece of the multibillion-dollar ad business related to search, and the new service will eventually allow it to jettison a deal with Yahoo's Overture Services. That agreement provides ad revenue but requires MSN to split the money with Yahoo.
Google has been earning 99% of its revenue from its ads for years!