Inside Microsoft's War Against Google

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PUTTING AD CAMPAIGNS TO THE TEST

Microsoft has been developing a technology that will give advertisers a more complete picture. It's called Engagement Mapping, and 16 advertisers and agencies have been testing it out since February. The technology anonymously tracks cookies, those digital footprints left on PCs by Web sites, to see if a consumer saw display or video ads within a month of making that ultimate click. Then it places values on each related online ad, weighting things like videos more heavily, since they're likely to have more impact. That way publishers and marketers have a better understanding of the effectiveness of ad campaigns and can adjust pricing accordingly. "It's not anti-search," says Brian McAndrews, the Microsoft senior vice-president overseeing the effort. "It's just a better way to measure."

Ben Winkler is a believer. He's director of interactive media at the Ingenuity Media Group, part of ad firm The Martin Agency. He's been testing the Microsoft technology for one of his clients, wireless provider Alltel. The technology, he says, shows that display ads have an impact that had never been clear before. As a result, he plans to advise clients to spend a greater share of their ad dollars on display vs. search ads. "We're taking credit away from search to a high degree," he says.

Google declined to comment on Microsoft's initiative for this article. In the past, the company has said that it doesn't think that advertisers should focus exclusively on the number of clicks on search ads. In fact, it's developing its own tools to give a broader view of all kinds of advertising.

Will all of this be enough to help Microsoft become a top competitor in online advertising? It's not at all clear. Even as Google moves into display advertising, Yahoo presents a serious threat. For all its struggles of late, an independent Yahoo is a potent rival. The Internet portal helped pioneer the display ad business, and analysts say it has a somewhat larger share of the market than Microsoft, thanks to its more than 500 million monthly users. Yahoo also has leading positions in online media segments such as news, sports, and finance. "I still maintain that our great consumer experiences, combined with our leadership on the advertising side, make us truly unique," says Yahoo CEO Jerry Yang in an interview.

Ballmer could ultimately turn back to his investment bankers. He may decide that Microsoft needs an acquisition to have a legitimate shot at Google in online advertising. There has been speculation that Microsoft could buy America Online or a social-networking site like Facebook to gain some of the scale it would have gotten with Yahoo. People are convinced that Microsoft and Yahoo will end up together, despite protestations that their talks are over. "I have to believe that they will get back to the table," says Anant Sundaram, professor of finance at Dartmouth College's Tuck School of Business.

But for now, Lorizio and his sales force have to battle with what they have. The New Englander sees himself as the underdog, much like his beloved Boston Red Sox, who were runners-up to the New York Yankees for decades. Ultimately, the Sox defeated the Yanks in 2004 on the way to their first World Series win since 1918. Lorizio thinks Microsoft has the technological firepower and financial wherewithal to persevere just the same way. "I'm here to win," he says.

With Robert D. Hof in San Mateo, Calif.

Greene is BusinessWeek's Seattle bureau chief.