Microsoft: Display ads more effective

August 8, 2008, 5:41 PM UTC

By Yi-Wyn Yen

Last month Google’s chief economist Hal Varian discussed the durability of the search giant’s business model during the company’s quarterly earnings call. “During periods of slow economic growth, the last thing an advertiser wants to cut is its spending on search-based advertising,” Varian said.

In other words, display advertising (the flashy and creative side of the business) will take a bigger hit than paid search (the directly-targeted and accountable portion that Google excels at) as marketers tighten their purse strings.

Microsoft (MSFT), however, argues that search ads get too much credit for click-throughs while display ads don’t get enough. The company, which is struggling to build an online ad business to compete with Google (GOOG), is challenging that notion with a new tool that measures the effectiveness of display advertising in an online ad campaign.

Atlas Institute, which is part of Microsoft Advertising’s research division, has released a study that shows that people are more likely to click on ads or buy things online when they are exposed to display ads. In a study called “Illuminating the Alltel Wireless sales funnel,”  those who clicked on search ads for the cell phone maker were 56% more likely to buy a phone or wireless plan from the company when they saw Alltel’s display ads compared to those who only saw Alltel’s search ads.

Search ads typically get the most credit for contributing to a sale because they’re the last ad that is viewed. “When someone is ready to take action by clicking on an ad or buying something, they will go to a search engine and type in what they’re looking for,” explains Morris Martin, an analyst with Atlas Institute who led the study. “The very last ad is the one that gets 100% of the credit. We did this case study to get a better understanding of the synergies between search and display.”

Microsoft’s new measuring tool tracks branded ads that an Internet user comes across before making a purchase. The tracking system, which gathers the wealth of data through the Atlas ad server, then assigns a value for all the ads that contribute to a successful sale. Along with Alltel, Microsoft says 14 other advertisers, including Best Western, Citi Cards and Sprint (S), are testing the product

Google spokeswoman Lynn Tornabene says that its display ad server Doubleclick introduced a similar tracking tool a year ago but would not say how many clients are using the product. She declined to comment on the Microsoft study.

Fundamentally marketers know it’s not all about search ads. It’s just that Google knows how to be at the right place at the right moment. “Google is so close to the point of sale,”  says Jeffrey Lindsay, an Internet analyst with Bernstein. “When people type in those keywords, they are at an extreme point of sale. That’s well understood. Everyone knows Google gets a whole heck of a lot more credit for searches than what is attributable.”

Marketers say they welcome tools to get better gauge the impact of display ads.  “I don’t think media buyers are making decisions based on [these tracking systems] yet,” says David Cooperstein, the chief marketing officer for Burst Media, an online ad agency. “But they are asking about it a lot more than they were six months ago. As this media matures, brand advertisers will start to look for more response the way direct marketers do.”