Microsoft's MSN Platform Drive

For instance, Web site owners who get ads through the MSN system -- largely small-business owners -- could buy other Microsoft products, such as business application software, Microsoft VP Yusuf Mehdi said in an article in The New York Times on Monday. (Mehdi was not available for comment for this article.)

The unveiling of the Internet paid-search ad platform caps a busy two weeks of MSN news wherein rumors abounded of a joint venture between MSN and AOL.

Many analysts doubted that Microsoft would relinquish control of MSN, and instead suggested that MSN, with its new paid-search ad platform, was trying to lure AOL's business from Google.

More recently, Microsoft announced a reorganization in which MSN would be part of a larger unit that includes its Windows and Office franchises.

Microsoft said the move is meant to better deliver on its vision of software as service.

That's been the company's mantra for years now, but the success of hosted software from the likes of Salesforce.com(CRM Quote) suggests that its time may finally have come.

The evolution of software delivered as a service on the Web, however, could pose either a new opportunity for Microsoft or a direct threat to its core desktop monopoly.

"What it boils down to is that Microsoft is in the business of putting software on the desktop and in the back office on servers," says Forrester analyst Ted Schadler, who covers consumer devices.

But, Schadler continues, if Google and Yahoo! offer key applications such as email, search and word processing typically found on the desktop, that raises the question, "Why do you need Microsoft?"

At least one Microsoft bull, however, doubts that there will ever be a time when all applications are delivered on the Web.

Internet Ad Sales MSN lags rivals

Source: Microsoft, Yahoo!, Google

Operating Income MSN falls short of peers

Source: Microsoft, Yahoo!, Google