Yahoo and Microsoft to compete with AdWords

The Internet search-advertising wars are getting hotter: Yahoo on Monday demonstrated an overhauled advertising system that promises to generate higher revenue and enlist more clients.

On May 4, Microsoft unveiled its own search advertising program and said it would invest up to $6 billion in a bid to catch up with Google.

Yet Google still easily dominates paid search ads – those little text ads that appear near search queries. The Internet powerhouse has made several enhancements to its search program as well. Google says it hasn’t heard anything from Yahoo or MSN to make it worry.

“There’s been nothing that’s announced that makes me want to change what we do,” says Richard Holden, director of production management for Google’s paid search programs.

Google brought in over $1 billion in profits in the first quarter primarily from text-based ads. Advertisers love search ads because they pay only if someone clicks on them. Holden says Google stays on top by upgrading its AdWords search program every two weeks to bring in new clients or to give existing ones more options. Recent enhancements to Google AdWords:

• Starter edition. Small advertisers griped that it was too confusing and took too long for them to sign up, create an ad and begin advertising on Google. So Google now offers a “starter edition” that promises to get clients up and running in less than five minutes, with a minimum of clicks.

• Local business ads. Now advertisers can go beyond a simple search ad by offering image ads, with pictures, directly within Google’s local maps.

MSN and Yahoo have both lost search market share to Google in the last year, according to measurement firm ComScore Media Metrix. In March, Google had 42.7% share to Yahoo’s 28% and 13.2% for MSN.

Yahoo, which will show off its revamped program at a meeting with analysts in San Francisco Monday, has added two major refinements relating to speed and costs. Its new search marketing system will begin operations in the fall. In the old system, advertisers could buy their way to the top position, by bidding higher for a keyword. The sponsor who offered $10 for “New York hotel” would be No. 1 if the next-highest bid was $8. Now, Yahoo has adopted a system similar to Google’s: Positioning is based on a dollar bid combined with the effectiveness of the ad and website. An advertiser who offers less, but whose ad is clicked more often, can get to the top.

Yahoo Senior Vice President Steve Mitgang says advertisers can also get their ads online much faster. “Now they’ll be up within the hour,” he says. Before, it had taken as long as 24 hours.

Yahoo provided search advertising for MSN until Microsoft decided to do it on its own. Its AdCenter is similar to Google and Yahoo with one big exception: MSN says it can target ads demographically, based on its huge base of Hotmail and MSN users. MSN staged an event two weeks ago at Seattle’s Safeco Field, home of baseball’s Seattle Mariners, to drive home the point that it intends to climb out of third place. Search advertisers love having another option for search marketing, but the new AdCenter “is really buggy,” says Chris Winfield, president of search-marketing firm 10e20.

Danny Sullivan, editor of the SearchEngineWatch online newsletter, says Microsoft and Yahoo should spend more time worrying about attracting users to their search engines. “MSN can have the most wonderful advertising program in the world, but if it doesn’t have the traffic, nobody cares,” he says.

Still, Jeff Lanctot, general manager of interactive advertising agency Avenue A/Razorfish, believes Microsoft’s round of investments “gives them a chance to make up ground with Google – off the PC.”

Microsoft might not catch up to Google on computers, but in a multidevice world, “They get a second chance,” Lanctot says. “Since they already have a head start against Google in digital TV, mobile phones and gaming, it isn’t unreasonable to expect that they could pull this off.”

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