Microsoft takes plunge with AdCenter

REDMOND, Wash.--A year after first announcing plans for a homegrown ad engine, Microsoft is now using the tool for all its U.S.-based search queries.

Microsoft is banking on AdCenter as the lynchpin of its efforts to increase advertising as a source of revenue across the company.

The software maker is still struggling with the growing pains, however. Last quarter, Microsoft shifted the majority of its U.S. queries over to AdCenter. But even with an increase in the number of search queries, the MSN unit faltered as it saw its revenue per search query drop, one of several factors that pushed the unit back into the red.

Still, CEO Steve Ballmer, who is expected to announce the completion of the switch to AdCenter on Thursday, has said the move is worth it, despite some pain in the near term.

"Further growth of AdCenter is key" to taking on Google, Ballmer wrote in an employee memo last week.

Microsoft is still rolling out the use of AdCenter internationally. It is already Microsoft's sole provider of search ads in France and Singapore, with plans to begin testing with some advertisers in the United Kingdom next month.

The software maker says that most, but not all, of its clients who have been part of the pilot program for AdCenter have seen better "conversion rates," a measure of how many search ads turn into sales.

As part of his speech at the MSN Strategic Account Summit here, Ballmer will formally announce the company's broader ambitions for the product, which the company eventually hopes to use to serve up a much broader array of products far beyond paid search. Microsoft is aiming to create a one-stop shop for contextual, search and display advertising.

The company is also announcing that it is acquiring DeepMetrix, a privately held Web analytics company. Microsoft said it plans to expand upon the company's existing services and will build new analytics capabilities into future versions of AdCenter.