Microsoft CEO Steve Ballmer may have threatened to “kill” Google in a notorious speech to developers a year ago, but Microsoft’s recent financial results for the first quarter of fiscal 2006 suggest that the company’s MSN search network as yet shows no signs of encroaching on Google’s dominance in the paid search business.
For July through September of this year, MSN posted an increase in ad revenues of $60 million, or 20% higher than in the same quarter of last year. Revenue for the total MSN division remained flat year to year at $564 million, but that represents a decline from the $598 million posted in the previous quarter.
The company blamed a 30% decline in dial-up subscriptions for the revenue fall-off at MSN. But another problem is that most of the growth in MSN’s ad revenues came from display ads, not paid search, which the company said does not yet produce a significant amount of revenue.
The performance seems all the weaker coming on the heels of Google’s most recent quarterly announcement that it almost doubled its revenue—almost all from advertising, although not all from paid search—from the same period last year, and increased it 14% from the preceding quarter.
MSN recently launched a U.S. beta test of its new adCenter sponsored listing product. Already in operation in France and Singapore, adCenter will eventually let advertisers target their ads to be seen by specific demographic groups. That higher value to advertisers may in turn compensate for the “pressure” that Microsoft reported on bid prices for keywords.
But in the short term, the company warned, profitability for MSN could erode over the next few quarters because of further investments in search technology, in the adCenter platform, and in a sales force for the product.
