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Last night I had the chance to attend Microsoft’s launch event for Virtual Earth 3-D in San Francisco. It was a well-organized event that included introductory remarks by Microsoft GM of Search and Mapping Erik Jorgensen and the GM of the Virtual Earth business unit, Stephen Lawler. Then guests were allowed to wander freely between a handful of stations that each focused on a different facet of the product. I spent most of my time at the “licensing and advertising” station and also got to play around with the application, which I have to admit is kind of fun. This can be done with a mouse but is most effective with a USB-enabled Xbox controller (these were distributed in gift bags on the way out).

The functionality and 3-D rendering of the product is much like that of the installed version of Google Earth, but it takes this to a new level in that it is Web-based so it can be modified in real time and integrated with other online features, making the product more dynamic. Specifically, data featured in other Microsoft Live products such as Windows Live Local  including Yellow Pages listings and real-time traffic data  are overlayed on the 3-D maps. More important, the opportunity to integrate advertising has been captured through virtual billboards that float above buildings as mentioned in the brief post yesterday (and shown in the image below). And the renderings of buildings and landscape are more colorful and accurate than Google Earth.

So how did Microsoft do this? The 3-D models are based on high-resolution images taken from many angles throughout U.S. cities. This technology was behind Microsoft’s acquisition last year of 3-D imagery technology developer Vexcel.

“If you were to take a picture of an object from this side of the room, and then go do the same from over there, you could make a 3-D mock-up of the object,” Christopher Pendleton, account technology specialist for the Virtual Earth business unit, told me (read his blog here). Now imagine this with many more angles, high-resolution cameras and extremely sophisticated 3-D rendering software. The interesting part is that this has created 3-D models that are rendered to perfect scale and also contain accurate textures and colors of buildings.

For example, I asked how long it took to take the base data that the system created and touch it up to make buildings look so sharp, colorful and realistic (the accurate colors and shapes of the buildings throughout the San Francisco skyline, for example). The answer I got was “none.” There is apparently very little manual retouching required, which is surprising and impressive given the quality of the graphics. This also says something about the relative speed at which the company will be able to roll this out in other cities and keep it maintained and updated over time. There were some minor touch-ups required in some cases, according to Pendleton, such as old brick buildings in Philadelphia.

The local advertising implications were still the most interesting part for me, given that a third dimension to the mapping experience has opened up a significant amount of ad inventory that wasn’t there before. There are still, however, concerns of over-commercializing the experience.

“We don’t want to overdo it with ads, but there is still a lot of opportunity to add relevant ads throughout the maps,” said Pendleton. As mentioned yesterday, the company has already begun placing ads with the help of Massive, the in-game advertising company it acquired earlier this year, and all ads are hyperlinked to the advertiser’s Web site.

There are also many other possibilities for geographically relevant ads to come into play  many of which will be realized and tested as the product and its many applications evolve. Classified ads, for example, could be integrated, where a search for certain items can return results that are plotted throughout the 3-D map interface.

“There is a lot of room to integrate this with other Microsoft Live products,” said Pendleton, hinting at geographically relevant classifieds and marketplace data from Microsoft Expo, among other places. There are also clear opportunities for real estate classifieds. Microsoft has released the product’s API so that companies  including real estate or other classified verticals  can overlay their data onto the base mapping technology.

Microsoft will now focus on launching the product in other cities. Lawler mentioned that he would like to see it in “hundreds” of cities, although he didn’t give a timeline. Rafe Needleman at CNET is reporting that there will be about 100 cities covered by summer 2007. When I inquired further with Pendleton, he mentioned that a timeline has indeed not been made public but that I could probably guess which cities were coming next. Fair enough.

We’ll continue to examine the product and its possible applications. For now it seems that it is enough of a departure from the current state of the art in online mapping that it could spur new innovation around advertising and local search in ways that could eventually be game changing. We shall see.

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