This ‘Live’ Space for Rent

“Hi, Mom. Just wanted to e-mail you to let you know I’ll be arriving home next Friday afternoon. Want to go out to eat? Just pick a restaurant from the ads to the right of this message and let me know.”

Keyword marketing juggernaut Google is mum on whether the ads it places in Gmail users’ missives are clicked. Now, Microsoft is taking the game to the next level with Windows Live and Office Live.

The Web-based offerings, announced on Tuesday, will offer some of the functions of the desktop products for free, but users will see ads along with their e-mail, instant messaging and collaboration tools.

Marketers are excited about having a new place to play, but they wonder whether the ads will pay.

“Microsoft is taking the fight to Google’s backyard,” said Andy Beal, CEO of Fortune Interactive, an interactive marketing agency specializing in search engine and blog marketing. “It’s interesting to see Microsoft switch gears, instead of trying to fight Google with apples and oranges,” that is, Google offering ad-supported services and Microsoft offering them for a license fee.

In its quarterly earnings conference call, Microsoft CFO Christopher Liddell expressed disappointment with MSN’s pay-per-click results for the quarter.

“Search advertising revenue was not as strong as we’d like,” Liddell said. Most of the money came from display advertising, something the Web portal excels at.

Microsoft began testing adCenter, its new pay-per-click advertising platform, in the U.S. in October. The company hopes that combining keywords with targeting based on user registration information will increase the effectiveness of ads — and MSN’s revenue.

“We continue to work on adCenter, and we expect this work to result in improvements over time,” Liddell said.

Marketers gave MSN higher marks than Liddell did.

“Maybe it’s disappointing relative to what’s possible,” said Fredrick Marckini, CEO of search engine marketing firm iProspect. He said that MSN’s investments in infrastructure put it on the right track to grow that slice of revenue.

But Microsoft is way behind when it comes to search share, and that translates into a limit on search ad inventory.

According to Internet audience measurement firm Nielsen/NetRatings, Google performed 45.1 percent of all searches for the month of September 2005. Second-place Yahoo handled 23.3 percent of all searches, while MSN trailed, handling 11.7 percent of all searches.

While MSN works to wrestle more search share from competitors, the Live offerings open up new territory.

Marckini called Windows Live and Office Live “a land grab . . . [and] an extraordinary expansion of contextual ad inventory.” He said the offerings are a step toward redefining the desktop from something that’s purchased and owned to something that’s used in return for viewing advertising.

“Most of the ad inventory available through partnerships with the big online providers are pretty much identified, and advertisers have already made their deals with Yahoo or Google,” Marckini said.

He believes advertisers and end users both will embrace this new territory. Users who already have accepted seeing both banners and contextual ads along with their e-mail may be ready to accept them in other applications.

“It’s an entirely new inventory, as yet untapped,” Marckini said, adding that the inventory will be unique to Microsoft.

Ellen Siminoff, CEO of Efficient Frontier, a provider of applications to manage search engine marketing campaigns, said that advertisers would use — and judge the results of — ads on Office Live and Windows Live in the same way they would ads in MSN Search.

Because Microsoft will use the adCenter platform to sell and deliver ads, it’s likely that pricing will be established in the same way: by letting advertisers bid for placement.

“As long as it’s a biddable marketplace, it doesn’t matter if it’s display or search advertising,” she said. “How the ad looks is not as relevant as what kind of price is established.”

Siminoff said most marketers she works with are very excited with Microsoft’s innovation. Microsoft hasn’t started selling ads for Windows Live and Office Live yet, but she thinks that at first, marketers will consider it a separate media buy from pay-per-click search advertising.

Marckini said that using adCenter as a single point of purchase would make it easy for marketers to test and use the Live placements.

“They’ll likely already be buying ads on MSN Search, and it won’t be much more [effort] to enable them to be extended across the rest of the network,” he said.

“Advertisers will buy each ad unit based on its performance, as they do today,” Marckini said. If Microsoft doesn’t allow separate buys for its search and Live offerings, marketers will have to calculate Live ads’ effectiveness by increases or decreases in their total return on investment.

Marketers will test carefully, Siminoff said, because most Web advertising is subject to very clear measurement of the return on investment. Search advertising is so successful because people who have searched for a product or category are as likely to be interested in ads as in the organic search results. That may not be the case with Windows Live and Office Live, she said.

Beal pointed out that Google’s contextual ads don’t perform as well as its keyword ads. While results differ depending on the category and the stage of the buying cycle that the searcher is in, he said, “Marketers and advertisers generally try to max out their spending on search engine placements before they look at the contextual side.”

Beal saw two potential problems with Windows Live and Office Live: their utility and their potential for overloading users’ attention for ads.

“I’ve tried the free versions [of software], and I’ve tried the paid versions,” he said, “and you get what you pay for. I’d rather have a solid solution that’s not going to stay in beta than a free version supported by annoying advertising.”

In addition, ad overload could spill over from ad-supported applications to search results, Beal said.

“They do run the risk that consumers will think, ‘Oh, those are the same annoying ads I get in my e-mail all the time. I’m not going to be looking at those.'”

AdCenter plans to aggregate data on users gained from across MSN to better target ads, and Marckini said Office Live and Windows Live would improve that targeting.

“MSN will be able to know a lot about the context, geography and income bracket of the user, because these are tools they’d be registering to use,” he said.

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