• by Shankar Gupta , January 13, 2006

MSN Thursday announced the formation of a research and development group, Microsoft adCenter Incubation Lab, which will aim to keep Microsoft on the cutting edge of monetizing its properties--including its search engine--with ad sales.

"We're really going to change the paradigm of online advertising with particular emphasis on contextual, paid search, and behavioral, as well as display," said Microsoft Product Manager Karen Redetzki. For MSN, the adCenter Incubation Lab--adLab for short--can be seen as an answer to Google Labs, the forge for many of the search giant's recent product launches.

AdLab will focus on monetizing all of Microsoft's properties, not just search, Redetzki said. "This is now about monetizing Microsoft ... It's about looking at Microsoft assets--Xbox, OfficeLive, XboxLive," she said. "It really goes way beyond MSN."

The centers were revealed at Microsoft's adCenter Demofest, where 15 of the projects being developed were shown to MSN and Microsoft advertising clients. Roughly half of the products demoed at the event are slated for release in the next six to 12 months. One product scheduled for imminent release was a behavioral targeting tool that maps users' Web-browsing habits, and allows advertisers to create their own segmentation, choosing what sort of Web-goers they want to target with MSN search ads.

AdLab is divided into two offices--one in Redmond, and one in Bejing, each with 22 researchers--and will work on roughly 40 projects at a time. According to Redetzki, the company decided to place one of the centers in China because of the large pool of talented researchers there. "We do go where we feel the people are," she said. "Search is a hot deal in China, and that's where the talent is--that's where we'll get the people to work for us."

Other products demoed were more conceptual. One featured a technology dubbed "Video hyperlink ads," which allows users to select products placed in TV shows or movies on DVD, and get products and purchase information on them--if a viewer is watching "Sex in the City," for example, and likes Carrie's Jimmy Choos, he or she might be able to select the product, get information on price, styles, colors, and sizes, and then find a Web site where the shoes might be purchased. Redetzki said that product is roughly three to five years from launch.