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Microsoft Launches MSN adCenter

Well, I just stink. Yesterday, MSN launches its ad platform, and I kept saying “I’ll blog about it after that thing”. Well, now its really late, and everyone else already had their say.

What’s cool about MSN adCenter? It gives advertisers access to MSN’s wide range of user data, letting them know what demographics their ad will reach, so they can target their ads and put their money where its more valuable. This is an idea that has proved crucial to television and radio, as their viewer/listener base has shrunk. Even with a smaller base, they can charge higher rates for shows that reach “coveted demographics”. For the internet advertising business, which is growing at a still-strong clip, this just means more and more profits. The rumblings out there are that the advertisers love it.

Of course, for the next six months, MSN adCenter will be limited to a test run beginning in Singapore and France, with no specific launch date. Still, everyone just wants more info, because it looks like MSN has put together one of the better advertising packages out there.

internetnews.com:

Advertisers will be able to refine their keyword buys by geographic location, gender, age group, lifestyle segment and time of day, combining data from Microsoft’s Passport registration and purchased demographic information from partners including consumer data bureau Experian.

What MSN is done is not just to enter into the ad market. They’ve split up the Big Two monopoly (Overture and Google) that existed in keyword ad sales. I’ve always argued that the search ad business is a house of cards. Its based on the idea of limited supply and infinite demand. Since only two companies had decent keyword bidding, the bidding system pushed some keyword prices to astronomical levels. With MSN increasing the supply, demand is weaker and the prices drop. For every point in market share MSN can pull away from Google, that’s 1% less people bidding on those keywords. That means every percent of market share MSN pulls can hurt Google or Yahoo/Overture anywhere from 2-7%, in theory.

The thing Google has going for it is growth. The internet ad market is still growing. If growth in advertisers and ad dollars can outpace the coming drop in the supply/demand ratio, Google’s growth will be enough to keep profits at a healthy clip (and keep in mind, the stock market’s expectations for Google are huge, so a “healthy clip” demands a lot). If MSN’s splitting of the market (and MSN share of internet searches isn’t so far behind Google that it won’t make an immediate dent) works at a fast pace, Google will be hurt badly, as companies and investors freak out at seeing a (on the surface) crashing keyword market.

The market won’t actually be crashing. Keyword prices will be dropping, but advertisers will, initially, see that as an opportunity to reach more people, and thus buy more ads. However, with tools like what MSN is offering, advertisers can get a decent idea of the market penetration they are getting. Once enough eyes see their ad, once enough mice click on it, the lowest prices in the world won’t be that enticing. Click-through rates will drop on advertiser who buy too many ads; ad spending will drop on advertiser aiming to reach a certain percentage of the market.

This market has a ceiling, and it is going to reach that ceiling sooner than anyone has predicted. The strong growth of the last few years is going to slow more rapidly than thought possible, because of the nature of the keyword prices. It isn’t a crash, just a mature market. Google, Yahoo, and MSN will see their ad divisions become steady, dependable cash cows. There is only one danger inherent in all these developments: the stock market. If the market freaks, these companies (more so Google, very little for Microsoft) could run into big problems as the Street abandons them.

Wall Street would be very, very wrong if it abandoned Google. The company has a strong, if single-minded, bottom line, one that could stay wildly profitable until the Internet goes away. However, since Google’s buzz on the Street is so high, it could get killed by this mature market.

If MSN is getting into the ad business to make money, good for them. It is a good business. If they got into it to kill Google, they’re brilliant and evil.

And they might just pull it off.

March 17th, 2005 Posted by | General | 2 comments



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2 Comments »

  1. Your discussion of dropping rates for paid search assumes that advertisers will value a paid listing on MSN Search as much as they do on Yahoo or Google. However, Nielsen stats show that, while MSN Search is approaching Yahoo Search in terms of unique visitors (40m to about 45m) and is even reasonably close to Google Search (about 60m), most of those visitors are not spending any time at MSN Search. That is, average time-per-visitor-per-month is 4x on Google Search and 2x on Yahoo Search compared with MSN Search. Same with overall page views–about 3x on Google Search and 2x on Yahoo Search.

    In other words, people may be trying MSN Search for a single search here and there, especially as a “last resort,” but they’re still using Google or Yahoo as their default and for the majority of their searches.

    So would you rather pay $.30/click for top placement on Google or $.20/click for top placement on MSN Search?

    Comment by MattyDread | March 18, 2005

  2. My theory is that if MSN gets ad sales in relation to its search engine market share, a previously .30 ad on Google will drop to cost around .15, while the MSN ad will be around .07, with most advertisers buying both.

    Comment by Nathan Weinberg | March 19, 2005

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