November 11, 2005 4:00 AM PST

Microsoft's ad pitch underpins Net moves

Microsoft's grand ambitions for free services rest on one thing: its ability to get to know you better.

The company has outlined a whole host of things it would like to offer as part of its "Live" services effort. But it needs to make more money selling ads to make the push pay off.

To do this, it's betting on personalization as the way to boost its online ad sales. The centerpiece of the strategy is something called AdCenter--a tool that Microsoft has been developing for more than a year as a way to serve up ads tailor made for the user that is receiving them.


What's new:
Microsoft's ambitious plan to provide free software and services over the Internet rests on generating enough ad revenue to pay for it.

Bottom line:
The software maker is betting that its AdCenter tool, still in development, can help it catch up with Google and Yahoo by delivering ads targeted by gender, age and other characteristics.

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While Google and Yahoo have made millions dishing up ads based on the context of what is being searched for or read, Microsoft is hoping it can leapfrog its rivals by combining that information with demographic details on who is doing the searching.

Right now, AdCenter is somewhat limited. For one thing, it's still in beta testing--in Singapore and France since September, and on a limited basis in the U.S. since last month. In addition, the tool, formerly known as MSN AdCenter, can only serve up the kinds of keyword-based, search-related text advertising offered by Google's AdWords and Yahoo's Search Marketing unit.

"Today, it's keyword," said Joanne Bradford, Microsoft's chief media revenue officer. "We believe in the future it will be about display (ads), video and all that is advertising."

The company will need to both grab market share and significantly grow the overall online ad market if it hopes to shift a significant part of its $40 billion business over to an ad-supported model.

"There is a significant growth opportunity for us, as we tap into the growing market for online advertising," CEO Steve Ballmer said at this week's shareholder meeting at Microsoft's Redmond, Wash., headquarters. "There will really only be a few big players in the online advertising market, and our company aims to be, and will be, one of them."

Catching up
First, though, Microsoft has to be able to match Google and Yahoo, Web companies that have built huge businesses selling keyword-based ads that bring vast numbers of users to Internet sites. Google, for example, generated $885 million in revenue last quarter from ads on its own site, along with $675 million in revenue from ads on partner sites through its AdSense program.

A search/ad mismatch

"I will admit we were late," Microsoft's Bradford said. "If we are going to catch up in any meaningful way, differentiating and adding value was critical."

Microsoft's effort to outflank its main rivals is centered on giving advertisers more targeted information about the people it is serving up advertising to--things like age, gender and ZIP code, as well as the time an ad will be delivered, and other data.

Chris Winfield, president of 10e20, a New York-based search marketing and advertising firm, said such targeted information is the key advance of AdCenter.

"If it wasn't for that, then it would be (Google's) AdWords 'lite,'" Winfield said. "But that makes it a really powerful thing and something that we are excited about."

"I'm willing to pay more if I know that I am getting a demographic."
--Chris Winfield, president, 10e20

In a pitch to a consumer goods company this week, Bradford pointed out the difference between what Microsoft is offering and today's keyword search. Buying the keyword "bleach," she said, would seem to be a targeted purchase for someone that makes the household product. But, Bradford said, two-thirds of the people who query on that term are men aged 18 to 34. It turns out that many of the searchers are looking for a popular form of Japanese animation that also goes by the term "bleach."

Simply being able to target the ad to women could make it a lot more effective, assuming the gender-based stereotypes of who buys bleach are true.

Such demographic information is something that Winfield said is appealing to his clients.

"I'm willing to pay more if I know that I am getting a demographic," Winfield said. "This is where paid search is going--it's getting more personalized and more localized. With that will come higher prices."

That's critical, if Microsoft is to be able to offer a broader array of services and software that are entirely supported by advertising revenue.

"It's one of the highest priorities for the company," Bradford said.

Microsoft's first foray into new ad-supported services are the Windows Live and Office Live products it announced last week. Of key importance, both services are highly personalized and thus well suited to delivering the kind of targeted ads that AdCenter is intended to deliver.

CONTINUED: Making ads palatable…
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And the crucial question is....
.... how does the average user turn it off??? or delete it??? or
Posted by Earl Benser (4310 comments )
Reply Link Flag
You don't
Things that are ad-based are that way because you aren't paying for the software. The option to turn them off requires you to actually pay for the software, that's how it works with everything ad-based.

Opera, before it was free, had google ads across the top. Google ads are very nice to have, especially always on like that. They are context based so you could see a link to something related to what you are reading, that you otherwise might never see. The internet is huge, ads like these help bring it to you. If Microsoft can manage to get this working right, it will be a useful tool, not an annoyance. Plus it means you don't have to drop $500 on Office.
Posted by PurePacket (28 comments )
Link Flag
AD shmads
I use google and MSN all the me but I have never clicked on an AD ever!!! Do the adverizers no that this ad stuff does not work?
Posted by timgreenwalton (2 comments )
Reply Link Flag
If it didn't work...
Then Google wouldn't be making over $4 billion a year from their ads alone. Maybe you should reread the article, it DOES work. Google ads are great.
Posted by PurePacket (28 comments )
Link Flag
I might be wrong
But wasnt the Dot com crash having partly to do with advertisers pulling out of free services that were supported by ads? Im just recalling back when i used to do web pages for gaming as a hobby for a group that played online games, and i remember alot of great free web hosting service's closed out their free ad supported service due to advertiser's claiming loss in revenue, same could be said about alot of the free email and messageboard services that were around also.

And well while ad supported software is nothing new, i developed a distrust in alot of them due to some companies using spyware, so im very leary towards that kind of stuff - free is nice but not to me if it comes at a cost of losing privacy and having problems with your machine.
Posted by (71 comments )
Reply Link Flag
So Wrong
It's funny how some of you don't have a clue about the world of advertising and brand recognization. Advertising is a critical part of sending across a message to a specific audience. If advertising didn't work, as one of you pointed out, then Dell, Intel, Sony etc. wouldn't be where they are today. It's because of advertising that the world recognizes these companies are technology leaders.

Yes, advertising is helpful. How would you find the next best MP3 player or digital camera without seeing an advert. for it? That's right, you wouldn't. Companies rely on advertising to generate sales and adverts. do work.

You do realize that advertising is a source of revenue for almost all media companies. If advertising dropped, pretty much all the media companies would die out and companies then would have no form of communication. So it's a catch-22 thing.

Bottom line: advertising will never ever die, nor would I want it to do because I like my news too much. Moreover, if more people start to block advertising, companies will find creative ways of surpassing that, and the battle between consumers and advert. agencies will continue.

So for those of you hoping to see the world without advertising one are in a disappointment of your life.
Posted by gundeephora (22 comments )
Reply Link Flag
Microsoft ads feel bad
An An ad supplied by Microsoft is the worst kind of ad. A Google ad gives me a warm fuzzy feeling.
The point is that if you do not like a company, it doesn't matter what they do, it always feels bad coming from them. We also know that a lot of people hate Microsoft for one reason or another and rightly so. But no one hates Google as they have done a lot for the Internet and big and small businesses alike. They have so far been a good force in the IT world.

The push for online services with the Web as the platform gives Google the advantage because the Web gives us choice and we choose who we like. Microsoft has been force feeding people on their stuff for years with Windows, but they cannot force feed anyone on the Web. As the saying goes, "you can lead a horse to water but you cannot make him drink". Traditionally people have only used Microsoft because they had to. On the Web that will not be the case.

That said the Justice Dept will have to keep an eye out for illegal business practices from Microsoft. Microsoft may resort to breaking the law again when they realise they cannot win by fair competition.
Posted by t8 (3716 comments )
Reply Link Flag

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