Microsoft entering fray with Google and Yahoo

The Microsoft Corp. will unveil today its own system for selling Web advertising as it struggles to compete with Google and Yahoo in the expanding Web search business.

The system, to be used by MSN, is meant to improve on those of Microsoft's rivals by allowing marketers to aim ads on Web search pages to users based on their sex, age or location.

The move is part of Microsoft's broad response to the threat from Google, which is using its powerful advertising sales network to support an expanding range of free software products and Internet services. Last week, Microsoft announced a broad reorganization that placed MSN in the same group as its Windows operating system, indicating that it saw software delivered over the Internet — and possibly paid for through advertising — as central to its future.

But to offer such advertising-supported services, Microsoft needs to control its own system for selling targeted advertising. Until now, the ads on MSN's search service have been sold by Yahoo.

Yusuf Mehdi, a Microsoft vice president, said the company's service would have greater appeal to advertisers and ultimately would make more money for Microsoft. "We know we have to compete hard for our business," he said. "And we think we will offer advertisers better value because of the superior information we have about our audience."

Microsoft's entry into this business is getting an unusually warm reception from the advertising agencies that specialize in search marketing.

"They definitely have a market because they have the traffic," said Danny Sullivan, the editor of the Web publication Search Engine Watch, of MSN's search business. "Search marketers can't seem to get enough traffic. I don't know anyone who is not going to try MSN."

Microsoft all but ignored Web search until Google had established its technology and brand. It was not until this past spring that MSN began using its own technology, replacing technology it bought from Inktomi. Independent tests show that Microsoft's ability to find Web pages that relate to search queries lags that of Google and Yahoo, a gap Mehdi says he is working to close.

Microsoft hopes its new advertising system will match many of the features of Google's system, which is generally seen as more advanced than Yahoo's, and add a few innovations. The most significant advancement in the MSN technology is its ability to direct ads to viewers according to demographic characteristics, as well as by the day and time the ad is shown.