Turning Microsoft’s ad trash into treasure

By Yi-Wyn Yen

Ten years ago, Microsoft bought one of the most powerful ad networks of the first dot com boom - LinkExchange - for $265 million. At that time, the service provided free advertising for more than 1 million Web publishers, including eBay (EBAY). But after nine years of trying to turn it into a small business portal, Microsoft (MSFT) shut it down.

Now one company wants to turn Microsoft’s trash into an online treasure. AdBrite, a network that places paid ads on Web sites, has brought back the free ad exchange service and repackaged it as Spottt.

AdBrite even brought in a former LinkExchange cofounder to help create Spottt. “Back in 2005, I was talking to Tony Hsieh, one of the cofounders who is now the CEO of Zappos. I told him I couldn’t believe Microsoft shut down LinkExchange,” AdBrite cofounder Philip Kaplan said. “Of course this was before ad networks existed and everyone had their own Web site. Now something like [LinkExchange] would be the most valuable thing. I asked Tony to help me rebuild it, and he agreed.”

More than 2,000 web publishers and bloggers have joined Spottt since the service launched about three weeks ago. Spottt users prominently place a small, square image on their site, which then rotates ads for other sites that also use Spottt. The service is free, and Kaplan says AdBrite plans to make a profit by eventually rotating paid ads whenever there’s an opening. (When your Spottt ad shows up twice on a site, you return the favor by showing that site’s ad once.)

Plus, anyone with a Web site is a potential paying advertiser. Spottt ads are placed randomly throughout the Internet. AdBrite is banking that some Spottt users will eventually pay to better target their ads.

Kaplan says AdBrite is testing Spottt to be used on social networking sites like MySpace (NWS). “An 18-year-old kid with a band profile on MySpace wants people to come to his site, but he’s not going to pay for advertising. Spottt will be the world’s first solution that will let you advertise your MySpace page for free. When it does, Spottt will take off like wildfire,” Kaplan predicts.

But if this is such a great service, why did Microsoft kill it in the first place? A Microsoft representative said the flashing banner ads that popped up on LinkExchange were becoming unpopular at that time, while relatively unobtrusive text ads that appeared on search engines like Google (GOOG) were gaining acceptance.

“LinkExchange was before its time,” said Mike Hurt, director of ad product planning and strategy for Microsoft. “AdBrite’s done a good job of making their ads standardized.”

Hurt says now Microsoft is building its ad business around aQuantive, the ad company they bought for $6 billion last year. DRIVEpm, an ad network within aQuantive, sells ad space for the top 250 publishing sites. Microsoft is also hoping to buy Yahoo (YHOO) for $45 billion to better compete with Google.

“Microsoft didn’t think that advertising on small Web sites was a worthwhile endeavor. Now they’re trying to get the small publishers again,” Kaplan said. “It’s very unfortunate. Microsoft could have been very, very big.”