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Thanks to Microsoft, This Ad's For You

UPDATED: Targeting ads to match users' needs and wants has long been a benefit of online advertising, but now Microsoft says that it's taking that concept a step further with its just-out-of-beta adCenter.

The effort is seen competing with Yahoo's Overture and Google's AdWords services.

Microsoft eventually hopes to compete with AdSense, Google's popular contextual advertising service, when it rolls out what it calls "exclusive targeting features" that enable advertisers to decide exactly who should see their ads and when.

However, the software maker insists that adCenter, which it introduced this week at a conference for advertisers in Seattle, isn't just a remade, slightly tweaked version of Google's service.

"This is a new tool," said Karen Redetzki, a Microsoft spokeswoman. "It's an evolution of paid search that we are offering for advertisers. We're able to provide audience intelligence. A lot of big advertisers spend tens of thousands of dollars a month for that type of data."

Online advertisers often agonize over the choice of keywords, which are the words someone looking to buy their product or service is likely to enter into a search engine.

"Buying" that keyword means your ad will be displayed with search results associated with the keyword.

With adCenter, Microsoft will provide advertisers with information about what keywords people used and what search results they chose to explore, enabling advertisers to know what keywords will be most effective.

The company will extract much of that data from registered users who have given permission for the information to be used.

Advertisers will also have access to lifestyle and financial index information provided by third parties, such as Experian, a credit reporting company. Redetzki said that the information provided to advertisers will not be personally identifiable.

Microsoft is also testing behavioral targeting.

For example, if users were to enter a search query for a Lexus, the company would be able to provide extract information from that user's other recent search queries to provide a bigger profile based on behavior.

"If you're searching for many cars, we can assume you're not ready to buy and that you're deciding what kind of car you want to buy," said Redetzki. "Advertisers can then create campaigns tailored to those types of buyers."

Greg Sterling, founding principal of consulting and research firm Sterling Market Intelligence, said AdCenter is similar to what Google and Yahoo are offering in terms of its basic proposition. The additional data and targeting is the big differentiator.

"Marketers are very interested in the additional targeting capability," he said. "It brings demographic and behavioral layers to regular pay per click. One should see better, more relevant ads and more click-throughs for advertisers. Ultimately, that should translate into a better return on investment."

Assuming Microsoft delivers on that mission, the other issue it will confront is consumer-limited search volume, Sterling said. AdCenter will only serve up ads to users of MSN Search, which is trailing Google and Yahoo in number of users.

"MSN has lost market share over the past year," said Sterling. "It has millions of queries but nothing on the level of what Google has. Consumer search volume is why Google's paid-search revenue outpaces its competitors."

Companies spent $5.1 billion on search-related ads last year, up 31 percent from the year before, according to the Interactive Advertising Bureau trade group.

Microsoft beta-tested adCenter with about 6,000 selected users. The service is now open to all interested advertisers.

Users of the service bid against each other for the best advertising rates on their chosen keywords. Advertisers pay only if a consumer clicks on the ad, with prices per click averaging around 50 cents.

The service will initially be used for search advertising, but will eventually serve as a platform for ads appearing in videogames and on TV sets, according to Microsoft.

"If adCenter works well and marketers adopt it in large numbers, you'll see Google and Yahoo do more to ramp up their offerings," said Sterling. "Yahoo does have some behavioral and demographic targeting already. Google recently introduced a version of demographic targeting by verticals -- one can choose sites where ads are to appear."

Updates and corrects prior version to clarify that MSN's adCenter competes with Google's AdWords.