|Microsoft's AdCenter May Fail to Topple Google From Dominance |
May 3 (Bloomberg) -- Microsoft Corp.'s new Web advertising software, three years in the making, may fail to crack Google Inc.'s dominance of the Internet ad market.
The AdCenter software will be demonstrated at meetings this week at Microsoft's headquarters in Redmond, Washington. While five advertisers who have tested the product said the program gives them features that Google lacks, they said they won't increase their spending on Microsoft's MSN search engine because it doesn't draw enough customers.
``It's the volume on MSN today that's the problem,'' said Mike Gullaksen, 27, senior vice president of search at ICrossing Inc., an ad agency in Scottsdale, Arizona. He said Google gets 65 percent of his money to Microsoft's 5 percent. ``It comes down to getting in front of the most people.''
The reluctance of advertisers to use MSN shows that the challenge for Microsoft, the world's biggest software maker, is bigger than just developing superior programs. The number of Web searches run on Google outnumbers MSN's almost 5-to-1 in the U.S., making it hard for Microsoft to make inroads in Internet search advertising.
Google, the most-used search engine, introduced its AdWords program, which lets advertisers buy links next to search results, in October 2000. Microsoft's addition of features to its program won't make up the gap, advertisers said.
``They have to find a way to increase search traffic,'' said Matt Rosoff, an analyst at Kirkland, Washington-based Directions on Microsoft. ``You'll have to look a year from now to see if they made any progress.''
Chief Executive Officer Steve Ballmer, 50, is courting ad agencies including Seattle's Avenue A Razorfish, saying those customers are as important as developers who create software for the Microsoft's Windows operating system.
Once, ``I'd say developers, developers, developers, developers, but not any more, baby; it's advertisers, advertisers, advertisers,'' Ballmer said at an Avenue A client meeting in March in Florida, while running around the stage and punching the air.
Ballmer last week bragged about a plan to increase spending to make MSN into an Internet powerhouse to rival Google. Goldman, Sachs & Co.'s Rick Sherlund put the extra spending at almost $2 billion, with most of it earmarked for MSN.
The price tag surprised investors, sending the shares tumbling 11 percent on April 28 and erasing the stock's best start to a year since 2001. The shares are down 8.2 percent this year and fell 28 cents to $24.01 yesterday in Nasdaq Stock Market composite trading.
AdCenter targets the links that run next to search results, which will grow 30 percent into a $6.9 billion market in the U.S. this year, according to Merrill Lynch & Co.
In tests, advertisers praised the Microsoft program for allowing them to target Internet search users of a certain age, gender and income. Google doesn't do that, letting advertisers pick only specific areas of the country.
``If you knew that a 16-year-old boy was looking at high-end Porsches, that's very different than if it was a 45-year-old male,'' said Ellen Siminoff, 38, CEO of Efficient Frontier Inc., a Mountain View, California-based search advertising agency that manages $200 million of spending for clients.
Advertisers also expect improvements at MSN to help them win better prices if there are more alternatives to Google, said Misty Locke, president of Range Online, an advertising agency in Fort Worth, Texas.
Known as Moonshot
The software, code-named Moonshot, has 7,000 customers and is used to sell 70 percent of MSN search ads, said Doug Stotland, a Microsoft group product manager. AdCenter is accessible only to test clients and will be fully available by the end of June.
Tarek Najm, the engineer leading the AdCenter project, had quadrupled his staff to about 220 as of February. Microsoft's job Web site has 86 open positions in AdCenter.
Microsoft has better features than Google for helping advertisers design their campaigns to attract certain customers and for tracking who responds to the ads, Najm said.
``Good luck to Google if they want to try to match that,'' he said in a February interview. ``Let them build it. It's a lot of work, a lot of research and a lot of algorithms.''
Google said its advertisers can show ads on specific Web sites, such as cycling sites for bike ads, giving them the opportunity to target certain groups of users. Features for targeting ads and reporting data give advertisers the greatest return, Google spokesman Michael Mayzel said.
In the past five years, Google's ad program has evolved with a focus on ads' quality and relevance ``while continuing to respect the user,'' Mayzel wrote in an e-mailed statement.
Ballmer still lacks enough Web users to entice advertisers. Mountain View, California-based Google handled 49 percent of U.S. searches in March, compared with Microsoft's 11 percent, said researcher Nielsen//NetRatings. Yahoo! Inc. had 23 percent.
``My only concern is we'd like there to be more volume,'' said Siminoff, whose company also tested AdCenter. ``It's a less competitive marketplace.''
Most companies put 70 percent of their budgets into Google, with 20 percent in Yahoo and 10 percent into MSN, said George Kepnick, co-founder of search ad agency Dottedonline.com.
``You're going to get the bulk of your traffic from Google,'' he said.
Ballmer said in a March interview that it would take Microsoft a while to match Google's extensive network of buyers and sellers. MSN's advertising sales rose 7 percent in the quarter ended in March, compared with a 79 percent rise at Google and 35 percent gain at Sunnyvale, California-based Yahoo.
Syta Saephan, 28, who runs PodsPlus.com, hasn't tested AdCenter. He says setting up new campaigns on Microsoft may not be worth the effort for his Davis, California-based company, which sells accessories for Apple Computer Inc.'s iPod music player.
``If Microsoft has such a small audience, it may not be worth the time and effort to even set up,'' said Saephan, who buys about $15,000 a month of Internet search ads. ``Google will probably continue to make up most of our budgets.''
To contact the reporters on this story:
Jonathan Thaw in San Francisco at firstname.lastname@example.org;
Dina Bass in Seattle at email@example.com.
Last Updated: May 3, 2006 00:08 EDT