Microsoft Search Ad Service to Challenge Yahoo, Google
Microsoft Corp. on Wednesday plans to introduce its own service for placing ads next to search engine results, setting up a three-way race among the software giant, Yahoo Inc. and Google Inc. to control a key segment of the lucrative online ad market.
A person familiar with the service said it would be rolled out slowly after tests in a few international markets.
After that, Microsoft is expected to dump Yahoo, whose technology Microsoft uses to deliver search-based ads on its MSN online service.
The move has been anticipated. Redmond, Wash.-based Microsoft replaced its Yahoo-powered search engine with a homegrown version last month. Creating its own advertising network was the logical next step.
“It means you’re going to have a pretty reasonable challenger to the two incumbents,” said Scott Kessler, an analyst with Standard & Poor’s.
Search-related ads are expected to generate 41% of the $11.5 billion budgeted for online advertising this year, according to research firm EMarketer.
The system was pioneered by Pasadena-based Overture Services Inc., which Yahoo acquired in October 2003 and plans to rename Yahoo Search Marketing Solutions. Companies use an automated auction to bid for text-based ads that appear when certain keywords are typed into the search engine.
It’s not a zero-sum game. Many advertisers are expected to buy search-related ads with all three big Internet companies and smaller rivals, much as advertisers buy TV spots on many broadcast and cable networks.
“When we have another horse in this race, we think it’s going to push Yahoo and Google to innovate and develop products that are attractive to advertisers,” said Jeff Lanctot, a vice president for Avenue A/Razorfish, a Seattle-based interactive-ad agency.
The contract between Microsoft and Yahoo, which share revenue generated by the ads, runs through June 2006. Spokeswomen for Microsoft and Yahoo declined to comment. But at an investor conference this month, Yahoo Chief Executive Terry Semel said he anticipated that Microsoft would launch a competing ad network.
“My guess is that they will do a good job,” he said. “I welcome that. It’s good to have good competition.”
