Friday, January 27, 2006

Microsoft reports lower search revenue in the latest quarter

Buried in the 10-Q that Microsoft filed yesterday is some information on how their search business is doing. Bottom line: Not well.

Microsoft doesn't disclose exactly how money they got from search, but it's clear that search revenue declined year over year. While search volume went up, revenue per search went down dramatically. They attribute the decline to the ramp up of MSN adCenter and lower revenue from text ads from Yahoo! Search Marketing. The transition from Yahoo! to MSN adCenter is going to cause some short term pain.

From Microsoft's 10-Q for the period ending 12/31/05:

Advertising revenue increased $40 million or 12% in the second quarter and $100 million or 16% in the first half of fiscal year 2006 due primarily to growth in display advertising on our portals, channels, email, and messaging services. Display revenue showed over 20% growth in both the three and six months ended December 31, 2005. Search revenue was impacted by an estimated 20% and 17% reduction in Revenue per Search (RPS) during the three and six months ended December 31, 2005. This reduction in RPS resulted from the ramp-up of MSN adCenter and lower than expected performance from partner driven search advertising prices, which was partially offset by low to mid-double digit growth in search volume in the second quarter and the first half of fiscal year 2006.

MSN expects increased growth in our display advertising revenue as the portals, channels, and communications services continue to expand globally and the overall Internet advertising industry continues to expand. However, we expect our overall advertising growth to continue to be tempered by the launch and ramp-up of MSN adCenter and the related pressure on our search advertising prices.

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