Microsoft Ad System Earning Good Marks From Online Ad Firms

Pete Barlas Tue May 6, 6:35 PM ET

Microsoft wanted Yahoo in order to better challenge Google, but it appears it didn't need Yahoo's search ad system, Panama.

Microsoft's (NasdaqGS:MSFT - News) own system, AdCenter, is better than Panama and nearly on par with Google's (NasdaqGS:GOOG - News) system, say executives of search marketing firms who use all three services to get ads strategically placed with search results.

After some delay, Yahoo (NasdaqGS:YHOO - News) unveiled Panama about a year ago, billing it as the way it would gain on Google, which dominates the search and search ad fields. Microsoft unveiled AdCenter at about the same time, to far less fanfare.

But, surprise, Microsoft's system is better, says Kevin Lee, co-founder of Didit, a search marketing firm that helps companies advertise online. "AdCenter is the stronger of the two platforms," he said.

Question Of Clicks

Lee isn't alone.

Microsoft has trumped Yahoo in better meeting the needs of advertisers in all areas, including ease of use and ways of reaching specific customers, says Danielle Leitch, executive vice president of MoreVisibility, another search marketing firm.

"I can't think of an instance where Panama is superior to AdCenter," Leitch said.

Search ad systems all aim to place ads so that they get a lot of clicks -- which means more money for the system providers and leads to more sales for advertisers. Google gets the great bulk of search ad dollars largely because it has the most-used search service, and thus more users who see and click its ads. But it's also helped by having what's considered the best search ad system.

In March, 59.8% of U.S. online searches were made via Google, compared with 21.3% for Yahoo and 9.4% for Microsoft, says market tracker comScore. So though AdCenter works better than Panama and is nearly as good as Google's service, says Lee, not enough consumers use its search service and thus see its ads.

"Microsoft doesn't have enough people doing searches on (Microsoft sites) MSN.com and Live.com, which is why they wanted to buy Yahoo," Lee said.

Microsoft on Saturday ended a two-month effort to buy Yahoo for more than $40 billion, as the two couldn't agree on price. Now, Yahoo must prove its worth, though its last two years have been marked by falling earnings and single-digit sales growth.

Yahoo hasn't released specific figures on Panama. But in the company's earnings conference call with analysts last month, Yahoo President Susan Decker said, "... Panama continues to make good gains, improving search relevance, click-through rates and the advertiser user experience."

Some search marketers agree. Bill Leake, CEO of search marketing firm Apogee Search, says Panama overall is better than AdCenter. But others tell a different story.

AdCenter does a better job than Panama in matching search queries to relevant ads, Leitch says. And AdCenter can be plugged directly into Microsoft's business software in order to make it easier for advertisers to make changes to their ad programs, she says.

"It gives you the ability to much more easily manipulate your campaign, especially helpful with large campaigns," Leitch said. "Yahoo doesn't have anything like that."

Google has built its lead by continually tweaking its software algorithms to be sure it gives the most relevant ads and search results. Microsoft, too, has continually improved in the past year, says Leitch. "But on Yahoo, there have been no big improvements," she said.

Last month, Yahoo said it would revamp its ad platform this year.

Microsoft's ROI Is Better

In the first quarter Yahoo's click-through rate dropped by more than 34% vs. a year ago among 25 advertising clients monitored by Efficient Frontier, a search marketing firm. Microsoft had the highest click-through rate, though down 12%. Google ranked between MSN and Yahoo, but was up 19%.

LeAnn Prescott, director of research and communications for Efficient Frontier, says Microsoft offers the best return on investment, ahead of Yahoo and even Google. A big difference is that Microsoft doesn't sell and place ads on partner Web sites. Yahoo and Google do, splitting proceeds with the owners of those partner sites. But that also means Microsoft's ads are going on its MSN Web portal and Live Search sites, where people are performing searches to find things. So the "quality of the traffic" is higher, she says.

Many of Yahoo's partner Web sites, though, don't bring in many searches, "which is why click-through rates are declining on Yahoo," she said.

On the other hand, Prescott does say that the quality of Yahoo's traffic has improved with Panama. And its search is used so much more than Microsoft's that she says there's no question Panama has more volume than AdCenter.

And that's Microsoft's problem. AdCenter fan Lee says his clients spend 75% to 80% of their online ad dollars on Google, 15% to 20% on Yahoo "and if there's something left, we toss Microsoft a nickel."