Microsoft has released a beta version of their new contextual advertising product, to compete directly against Google AdSense and Yahoo’s Publisher Network. AdSense is the clear market leader for one clear reason – Google pays the highest fees to publishers.

The actual details are light on as the product is still in private beta. However it appears the main feature will be the ability to display Microsoft ads next to Google or other third party ads.

The challenge in any contextual advertising (at least for advertisers) is getting decent click through rates and generating a positive ROI. Anyone who has accidentally left on the content network when setting up a Google Adwords account, will tell you the quality of the traffic from the content network versus the search network are like chalk and cheese.

Microsoft may be able to win the mind share of publishers by offering higher revenue splits than Google, which may very well be the tactic behind their bigger search strategy.

By getting publishers on board, the number of page views will increase which will naturally attract advertisers and drive ad inventory. As the inventory increases, so should the competition and click prices will increase. It just depends on how deep Microsoft is willing to go to fund this initiative – their pockets are very deep after all.

Then there is still the quality problem for Microsoft to solve!

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