Microsoft Corp.
(MSFT) researchers are developing technology to help small advertisers more successfully identify obscure Internet keywords, technology the software giant hopes could eventually boost the revenue it gets from Internet search advertising.
A tool being tested by Redmond, Wash.-based Microsoft works by tracking the different search queries that lead Internet users to a Web site. The company's researchers are identifying less-obvious paths to a given destination. Microsoft thinks the technology could prove popular with smaller companies with limited marketing budgets when they bid for search keywords.
"This allows advertisers to bid on keywords which are cheaper but potentially very effective," said Ariel Fuxman, one of two researchers working on the project at Microsoft's Silicon Valley research lab in Mountain View, Calif.
The technology isn't currently in commercial use, but is one of a range of tools that could give the software giant a valuable tool to challenge Mountain View, Calif.-based Google Inc. (GOOG), whose search algorithm is widely regarded as the industry standard.
Google commands the Internet search market. In May, the company left competitors Yahoo Inc. (YHOO) and Microsoft far behind, taking 68% of all U.S. Web searches. Google's business model has been built on allowing advertisers to pay for keywords that searchers can click on to go to their sites, a formula which has rapidly become the cornerstone of the Internet economy. Google's supposedly superior search technology means advertisers pay richly for keywords they think will propel their Web sites to the top of a Google query - the primary access point to the Web for many consumers.
Microsoft is anxious to gain ground. Internet search advertising is the fastest-growing segment of the total advertising economy. EMarketer expects it to hit $10.4 billion by the end of 2008, up by 23% on 2007. Microsoft is pushing to build its Internet presence amid a wider shift toward Web-based distribution of computer applications, which may challenge the dominance of its core Windows operating system and Office software tools.
To improve search capabilities, Fuxman and colleague Panayiotis Tsaparas are exploring the relationship between queries and the Web addresses they generate. They have found some connections that could help entice smaller, less Web-savvy advertisers, many of which have tiny marketing budgets, into the Internet advertising ecosystem by offering alternative keywords that fall outside the radar of the big brand marketers.
The technology works by assessing the probability that a given query will lead to a particular Web site. In tests, the team found surprising results. For example, the team studied queries that led to the Web site "shoes.com." Some queries were obvious, like "running shoes." But others, like "Jessica Simpson Shoes" and "Chinese Laundry," demonstrated that indirect and even apparently irrelevant queries can still lead searchers to a Web site with a surprisingly high probability.
So, while athletic equipment makers will likely continue paying top dollar to get linked with the term "running shoes," a small, custom footwear maker may be able to generate greater sales by bidding on a more obscure keyword.
To be sure, it is unlikely this will immediately upend the economics of search advertising.
"The thing that tends to happen is that listings in top positions are the links that tend to get clicked on," says Greg Sterling, a consultant who specializes in Internet search technology. A similar approach is already being used by Google through its so-called "broad match" option, which allows advertisers to extend their campaigns by matching to keywords that some users don't necessarily want to buy. Sterling thinks the technology isn't likely to be a "game changer" for Microsoft, though it could improve the efficiency of paid search.
If the technology were to be used commercially by Microsoft, it would join a panoply of tactics the company is pursuing to improve its search capabilities and help it monetize advertising to the levels enjoyed by either Google or Yahoo.
Among those tactics is acquisitions. Since February, Microsoft has been in on- again, off-again talks to buy Yahoo. Last Monday, Microsoft said it would be interested in restarting talks if the Sunnyvale, Calif.-based company's board is replaced, something activist shareholder Carl Icahn is trying to force.
Microsoft has also quietly bought up a bunch of small companies and is honing technologies to improve its search products. These include the acquisition of San Francisco-based Powerset Inc. and building relationships with computer manufacturers, such as Hewlett-Packard Co. (HPQ), to make its search engine the default on new computers.
The Silicon Valley researchers believe the application could help smaller companies build cheap but effective Internet search campaigns.
"It's true that big brands will probably continue to want to bid on the most obvious keywords," says Fuxman. "But the safe option is the most expensive. Only the large advertisers will be able to afford these keywords. We think bidding on less obvious keywords which are proven to generate traffic can help monetization and generate more sales.
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