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Includes Demographic Functions Google and Yahoo Lack

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NEW YORK ( At the same time it has moved against Yahoo by expanding its branded entertainment group, Microsoft Corp.'s MSN is also challenging Google and Yahoo by introducing a new pay-per-click search marketing service.
MSN'S new search engine ad system is being tested overseas before it goes live in the U.S. to compete head-to-head with Google and Yahoo.
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New Strategy Directly Challenges Yahoo's Lead Position

The company said the system is being rolled out in beta tests in Singapore and France before it goes head-to-head in what has become one of the U.S. market's most lucrative online ad sales category.

MSN is finding new ways "to be a more well-rounded publisher in terms of ad revenue," said David Hallerman, senior analyst at online advertising research firm eMarketer.

Google, Yahoo dominate
Paid search and online advertising have contributed strongly to MSN's growth over the last six quarters. For the second fiscal quarter of 2005, for instance, ad revenue grew 17% or $49 million on total MSN revenue of $588 million. Google and Yahoo together take in about two-thirds of the overall search spending, according to eMarketer.

MSN relies on Yahoo Search Marketing Solutions (formerly Overture) to power its paid search in a revenue-sharing arrangement. That relationship has been extended to 2006, while MSN tests its own product. "Paid search is very important to MSN," said Joe Wilcox, a senior analyst who monitors Microsoft for Jupiter Research. "It really doesn't want to be dependent on a competitor for a major revenue stream."

New demographic functions
MSN adCenter will provide search results that Google and Yahoo don't offer, namely demographic and lifestyle information, by overlaying third-party data with MSN registrations. That means that MSN's search advertisers will be able to target consumers by gender, age and interest.

"Should Google and Yahoo be worried? Absolutely," said Peter Hershberg, managing partner at search engine marketing agency Reprise Media.

"Microsoft built its empire as a late mover into established markets," he said. "They wait until a viable sector of the tech industry springs up and stabilizes, make incremental improvements to existing products and then flood the market. Everything we've seen suggests that they're poised to do the same in paid search."

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