Microsoft launches into paid search

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 adCentre 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.)

Adam Sohn, a MSN spokesman, said Microsoft does not have a specific date for a US launch, but it envisions operating the ad network globally.

"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 honey den of a multibillion-dollar ad business dominated by Google and Yahoo!. Search-engine marketing is expected to be worth as much as $5bn this year, and nearly $9bn 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, but the software giant is hungry for more.

Google fields 35.1 per cent of the searches online, followed by Yahoo at 31.8 per cent and MSN at 16 per cent, according to ComScore qSearch. If the number of searches translates to the percentage of the ad market, MSN generates roughly $1.6bn 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 4.9bn search queries in the United States during the month of January.

Key to MSN's strategy is to lure web searchers away from rivals, and then draw in advertisers. MSN's adCentre, for example, will offer advertisers detailed information on web surfers' responses to certain keywords, as well as demographic and psychographic profile data (in aggregate) on potential customers.

The company will also build in tools to give advertisers greater access to reporting data.

Finally, MSN envisions adding functionality that will let advertisers buy banners and other branding-styled ads, alongside keyword paid search. Sohn said MSN is interested in building in contextual advertising opportunities and ad-syndication services, too.

Stefanie Olsen writes for CNET News.com.