Microsoft digs in for online ads campaign

Despite losing out to Google in a recent high profile acquisition, Microsoft has vowed not to turn its back on the world of online advertising, according to company chairman Bill Gates.

Television, newspapers and all forms of publishing are being fundamentally changed by a shift to digital media, said Gates who was speaking to kick off a conference for large online advertisers.

Gates told a crowd of more than 1,000 people from the advertising, publishing and tech industries at the company's Strategic Account Summit: "Yellow Pages usage among people below 50 will drop to near zero in the next five years."

TV is similarly being overhauled, as broadcast media suddenly have to compete with videos of high school games and short clips posted to YouTube. Newspapers are moving to digital forums but finding plenty of competition for things like the job classifieds that were once their exclusive domain.

Gates said he has a lot of friends in the newspaper business but added there is also an "inexorable decline" in the use of newspapers to get news, even local news. "This is a tough, wrenching change for them," Gates said.

Microsoft, too, has found plenty of competition. But Gates and other Microsoft executives are trying to make the case that they are still in the game, despite missing out on recent, key deals and struggling to make a dent in the search market.

Kevin Johnson, head of Microsoft's Windows and advertising businesses, sent an email to conference attendees reassuring them the software giant is in the ad game for the long haul.

Johnson wrote: "Some of you have asked if we remain as committed following the announcement of Google's proposed acquisition of DoubleClick. Many of you have also expressed your concerns about the impact that such an acquisition will have on the online advertising landscape. While we share your concerns, we maintain our sharp focus on this industry, and we will continue to invest heavily in innovation and partnerships in this area."

While Microsoft is working to catch up to Google in areas such as search, it is also looking to technology to provide new types of internet content and advertising that it hopes will change the rules of the game.

Gary Flake, the former Yahoo! executive who heads up Microsoft's Live Labs, which tests out new ideas in internet content and advertising, said: "To think about this as the endgame is quite silly."

Microsoft showed how its Seadragon technology for scrolling large images could pave the way for a new type of advertising in which a small ad could actually contain an entire brochure or product catalogue. While the average browser would see just the small ad, an interested potential buyer could zoom in for more detailed photos and even detailed product specifications. Internally, Microsoft is calling that an "infinite zoom ad", Flake said.

Flake said in an interview: "It's pretty mind-boggling. The idea that you can have a finite piece of real estate, a fixed area that can be explored and expanded... now what is an advertisement can actually have as much information as a product catalogue."

Such ads could also be less obtrusive, said Flake. "It can be surfaced in a way that doesn't bother the user. It's actually great for the user because they only see it if they choose to dive into it," he added.

That said, the ad business would have to shift some to adapt to a different kind of ad. He said: "The click doesn't happen. There is no cost per click. We need something different... pay per zoom or pay per attention."

Ina Fried writes for CNET News.com