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Microsoft Strengthens Advertising Chops With Deals, New Research Group

Bill Gates and Steve Ballmer tell analysts Microsoft is "hell-bent" on becoming a powerhouse in the online ad business.

Microsoft is in the online ad game to stay for a while. In two deals with Digg and EA Games, an acquisition of online advertising exchange AdECN this week and the announcement of a new research group focused on advertising, Microsoft took steps to strengthen an advertising platform in which it has invested heavily in recent months.

In a speech to investors at the company's annual Financial Analyst Meeting on Thursday, Microsoft chairman Bill Gates said the recent moves in advertising have been made with an eye toward the future.

"The online advertising piece is a small piece of the overall advertising pie, but as TV viewing moves to the online space, the idea of targeting ads becomes completely a mainstream thing," Gates said. "That's why you're seeing us make investments."

Microsoft announced Thursday it would buy AdECN, an ad exchange that Microsoft execs likened to a stock exchange where ads are auctioned off to advertising networks that are members of the exchange. Yahoo bought an ad exchange in Right Media earlier this year, and Microsoft's purchase is likely in order to keep pace.

Microsoft currently sits in third place in the advertising game behind Google and Yahoo, but has designs on something bigger.

"We are hell-bent and determined to allocate the talent, the resources, the money, the innovation to absolutely become a powerhouse in the ad business," said Microsoft CEO Steve Ballmer. "This is essential if our software plus services vision is going to come to fruition."

As part of that effort to innovate and gain market position, Microsoft also announced it had formed a new applied research group called the Internet Services Research Center to help accelerate the development and deployment of new Microsoft advertising technologies. The group will be headed up by corporate vice president Harry Shum, formerly chief scientist for the company's Search & Advertising Platform Group under senior vice president Satya Nadella.

Earlier in the week, the company announced that it had won a deal to provide contextual advertising in a three year deal with social news site Digg, snagging the Web 2.0 darling away from Google, which had previously served Digg's ads. Microsoft also announced that it would add five popular EA Sports games to its in-game advertising network.

All the moves this week follow up on the company's announcement earlier this year it was purchasing online advertising company aQuantive for $6 billion, a deal Microsoft officials said Thursday the company hoped would close in August.

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