The online search industry has proven to be a fierce battlefield since it emerged in the mid 90’s. At the time, many companies ventured into the field hoping to capitalize on the fledgling business. However 10 years later, a burst tech bubble has filtered out the also-rans, leaving behind three major contenders with one announcing its new proposal for a better search solution for advertisers and web surfers.

Microsoft, the world’s largest software provider, has been revamping its search and ad distribution systems over the last 3 years and formally launched it last Thursday, dubbing it the ‘MSN adCenter.’ Microsoft hopes to lure in more advertisers with its advanced targeting capabilities and specific user targeting.

AdCenter, “[is a] technology designed explicitly for advertisers to interact with our user base” Steve Ballmer, Microsoft’s CEO, stated last week at the MSN Strategic Account Summit. “It's about [being] in context and in rhythm…” and having “the right kind of dialogue with the user.”

Instead of the traditional search based solely on the terms and keywords a user searches for, a technique that Google has mastered, Microsoft also hopes to incorporate a wealth of user data to personalize the search and make results more relevant.

Unlike other search engines, Microsoft already knows a great deal about its customers. “We've actually taken the breadth of information we know about our customers on MSN, through registration data when people sign up for a Hotmail account, or an instant message account,” explained Yusuf Mehdi, senior vice president of MSN.

Microsoft will use this demographic data in conjunction with the contextual ad matches, expecting to provide more effective advertising to the user. In theory, this will turn in to more effective clicks from end users, and in the end, more revenue for Microsoft.

“The bottom line: highly targeted consumer base,” Yun Kim, and AG Edwards analyst explained. With that base, “advertisers will spend a lot of money on [the ads] and that is the source of differentiation from Microsoft that Google is not doing.”

With such prospects there is urgency at Microsoft to get this service into the hands of advertisers as soon as possible - and to stop losing ground to the competition. Last quarter, MSN’s advertising revenue rose only 7 percent compared to the 35 percent rise Yahoo saw, and the 79 percent increase for Google.

With the main rivals turning out strong profits, Ballmer announced at the most recent earnings conference last Thursday that Microsoft would see a sharp increase in spending, over $1 billion in fiscal year 2007, for research and development of its internet services. The figure is twice as much as what was spent in 2005.

Such high numbers came as a shock to investors, who sent Microsoft stock down, Our stock showed some of that surprise Ballmer said. But Kim contends that this is money well spent.

“They cannot afford to keep giving Google the lead,” Kim said. The technology has been unfolding for years but now and “they are trying to accelerate that process, and that requires extra money.” He added “acceleration is the next investment; they are trying to get this out in one to one and half year time frame instead of three to four.”

Assuming that AdCenter is as robust as purported, it will be a formidable competitor to both Yahoo and Google.

As Tarek Najm, the engineer leading the AdCenter project, said in a February interview, “Good luck to Google if they want to try to match that.”