Microsoft is developing its own paid-search advertising facility to become a player in a lucrative market dominated by rivals Google and Yahoo.

Microsoft CEO Steve Ballmer is expected to make the announcement today in a speech at the MSN Strategic Account Summit, the company's annual online advertising event.

However, Microsoft will not make its presence in paid search felt immediately. Paid search will be tested within the next six months in Singapore and France, but beyond that the company has no date for its official launch, a Microsoft executive said.

"We're not talking about a timetable for delivery yet. We're focusing now on this pilot," said Karen Redetzki, a product manager at Microsoft's MSN Internet division.

For its paid search, Microsoft will provide advertisers with demographic usage profiles tied to keywords, including users' geographic location, gender, age group, as well as the time of day when queries were submitted, Redetzki said. For example, Microsoft will be able to identify the most searched-for keyword by males between the ages of 18 and 24 in New York City between 5.00 and 7.00 Redetzki said.

This information is collected from users who register with Microsoft's Passport programme, but it isn't used to identify individuals, meaning users' online activities will remain private, Redetzki said. Passport is a service that lets users enter the same login information to access any participating website, saving users from having to remember multiple usernames and passwords.

This demographic data Microsoft plans to provide to paid-search advertisers goes a step beyond what is available to them currently, and will open the search engine marketing field to new possibilities, said Gary Stein, a Jupiter Research analyst. "Exposure to that level of data and its potential uses is very interesting," he said.

While Google, Yahoo and others have established themselves in paid search ahead of Microsoft, the Redmond, Washington, vendor isn't late to the party, because this market is new, Stein said. "Search as a vibrant marketplace is only about two years old," he said.

And while Microsoft is a later entrant to the marketplace, it's not coming in with a me-too product, but rather with a distinct approach, such as providing very granular user demographic information to advertisers, Stein said.

The paid search effort is part of a larger programme Microsoft is putting together called MSN adCenter, in which the company will consolidate all of its online advertising activities. "We have built a house to put all in one place," Redetzki said. "Our vision is for adCenter to be a one-stop shop for all ad campaigns."

It's no surprise that the first horse out of the adCenter gates is a paid-search programme, since this is one of the largest and fastest-growing types of online advertising.

In the second quarter of 2004, total US Internet ad spending was about $2.37 billion, a 42.7 percent increase over the same period in 2003, according to a report issued in September by the Internet Advertising Bureau and Pricewaterhousecoopers. Search-related ads were the largest category with $947 million, according to the report.

Advertisers bid on search engine queries and pay a fee whenever someone clicks on their ads. The advertiser that bids the most on a particular keyword has its ad show up first on the list. For example, a sporting goods vendor might bid on keywords such as "basketball" and "racquet" and its ads will show up next to the search engine results of someone who used those terms as queries.

Until now, Microsoft has relied on Yahoo's Search Marketing Solutions division (formerly called Overture) to supply its paid search ads. But Microsoft wants to have its own program developed in-house from scratch and tailored to its MSN content and services, which draw about 385 million unique users every month worldwide to MSN sites, such as the MSN.com portal, Redetzki said. "Overture continues to be a very valuable partner for MSN. They are delivering (services) beyond paid search to us," she said.