Andy Beal has, at least in my aggregator, a scoop on talk of how Microsoft will rank bids in their pending search engine marketing marketplace. Paraphrasing Matt Lydon, Senior Sales Director of Search, MSN in a MarkterToday article:

"Question: What payment model does MSN plan to implement?

MSN – More similar to Google, and not Yahoo. They won’t have paid inclusion. They add another component to the CPC x CTR. They take into account the audience and use that info to determine the ranking. "

Beal comments:

"This last comment is particularly important. I have been briefed about this new ranking component for AdCenter, but I don’t recall MSN announcing this to the outside world. It could be that I missed the official announcement, but nonetheless, MSN is betting that it can provide a viable alternative to Google and Yahoo, by offering an algorithm that includes a “demographic” element. As an advertiser, you can have the highest bid, the best CTR, but if a particular user or demographic never seems to be interested in your ad, you may find yourself slipping in the rankings."

Seems like a logical extension (to the degree that it's transparent, easy to manage, and supported by robust reporting for the advertiser). Two quick comments:

1. This may have less to do with MSFT trying to "provide a viable alternative", and more to do with patents. Hindsight being 20/20, one of Overture's biggest mistakes may have been in only patenting an algo to rank by PPC. Regardless, it'll be interesting to see what effect this has on keyword-demographic (couplet) markets reaching liquidity.

2. Inside baseball here... it's rather ironic that the good Dr. Gary Flake ends up working at MSFT, who will now have the most "complicated" ranking algo, given his resistance to exploring the idea a couple of years back. I'd say more, but I actually like the good Doc, despite his now being 0-2 on topics we disagreed on. ;-)