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Originally published Friday, January 13, 2006 at 12:00 AM

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Microsoft nearing ad system for MSN searches

When it comes to the search-engine business — and the hot online advertising market that fuels it — Microsoft has lagged far...

Seattle Times technology reporter

When it comes to the search-engine business — and the hot online advertising market that fuels it — Microsoft has lagged far behind Google and other rivals.

Determined to change course, the company has poured money and resources into developing its own search engine and online advertising system. The search engine debuted a year ago, but the advertising component has taken longer.

Microsoft said Thursday that by the end of June it would begin selling advertising alongside its MSN Web search results. It previously relied on a partnership with rival Yahoo! for those ads, but has been testing its own system in the U.S. since October.

Microsoft also said it is reorganizing some of its scientists into a new division to focus solely on creating advanced technologies for online advertising.

About 22 scientists from Microsoft's Beijing research center and at least 20 from Redmond will work in the new division, the Microsoft adCenter Incubation Lab, or adLab.

Microsoft showed off some of its technologies in development Thursday at its Redmond campus, although it wouldn't allow reporters to see them all. One tool, which could be available in the next year, tries to predict a user's age and gender based on Web sites the person visits.

Another system could home in on the outfit a person is wearing in a television show and tell viewers where to buy similar clothing.

One research project would show advertisers the breakdown of users visiting a particular Web site based on their age, gender and location.

The adLab was borne partly out of a sense of urgency that now was the time for Microsoft to take a leadership position in the online advertising market. Key to that was improving ways to target ads to Internet users.

Researchers at the lab are working with 17 groups across Microsoft on about 40 projects.

"We looked around and said, 'Nobody has a group like this in the industry or even within Microsoft,' " said Tarek Najm, general manager of Microsoft's adCenter advertising platform. "We needed to establish a team of dedicated scientists."

To do so, Microsoft looked to Beijing. The company's Chinese lab has taken a leading role in developing search-engine technologies, many of which will go public in the next six to 12 months.

advertising

Certainly, Microsoft is not alone in this area. Google is hiring computer-science doctorates at a rapid pace and tightly locks down any information about projects in development.

Yahoo! last year hired Prabhakar Raghavan, a search and data-mining expert who made a name for himself at IBM, to lead its vast research group.

"It's a very hot area," said Charlene Li, an analyst with Forrester Research who tracks online search and advertising. Li said she surveyed advertisers last year to find out what they would spend more money on, if they could.

More than anything else, they wanted to be able to send people specific advertisements based on their age, gender, previous Web searches and other online activities. A 25-year-old man, for example, would be targeted with different advertising than a 45-year-old woman, Li said.

Yahoo! has been studying this kind of behavioral targeting for years with its base of hundreds of millions of registered users.

Google is at a disadvantage, Li said, because although it is the top search engine, it doesn't have a similarly large base of registered users it can track.

High-tech ad agencies, such as Seattle's aQuantive, are also developing ways to target online ads to specific segments of Web users. The company can organize ad campaigns across dozens of Web sites and track how effective each site is in reaching users.

Some Web sites use a very sophisticated system that makes split-second decisions about what ads to show a person, said Karl Siebrecht, the general manager of aQuantive's Atlas unit, which specializes in digital marketing technology.

But the technology isn't advanced enough so that an advertisers can, say, sell Kate Spade handbags to women in their 20s who go online during the lunch hour.

"There's still so much room to grow to make smarter and smarter decisions to get to the point where consumers only see ads that are targeted to them," Siebrecht said.

"That's kind of the nirvana. And I think we're just barely scratching the surface on getting there."

Kim Peterson: 206-464-2360 or kpeterson@seattletimes.com

Ad breakdown
How do Internet giants stack up when it comes to advertising? Here are the number of advertising impressions in the U.S. on selected Web sites for November 2005, as well as the share of total impressions for the month.
Site Image-based

impressions

Sponsored-link impressions Percentage

of Total

Yahoo! 34.4 billion 8.2 billion 25%
MSN 13 billion 2.1 billion 9
Google NA 15 billion 9
AOL 3.3 billion 3 billion 4
Source: Nielsen // NetRatings AdRelevance
Search breakdown
Google still tops the search-engine market. Here's what the business looked like for the month of October.
Provider Number of Searches Market Share
Total 5.1 billion NA
Google 2.4 billion 47.7%
Yahoo! 1.1 billion 21.8
MSN 583 million 11.3
AOL 368 million 7.2
Ask Jeeves 134 million 2.6
Source: Nielsen // NetRatings MegaView Search

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