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Microsoft Upgrades Display Ad Technology

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK ( TheStreet) -- Microsoft (MSFT) will be adding new features to its Internet display advertising products to stop customers from defecting to Google's (GOOG) or Facebook's competing products.

Display advertising could grow to around $12.3 billion in the U.S., according to Bloomberg. While Google leads the search advertising market, Facebook is the clear leader when it comes to display ads with a 17.7% share. Yahoo (YHOO) and Google come in next with 13.1% and 9.3% of the market followed by Microsoft with 4.9%. Facebook and Google have been expanding their market share rapidly in the last couple of years at the expense of Yahoo and Microsoft.

We estimate that Microsoft's online division contributes just under 5% of our $28 Trefis price estimate for Microsoft . Our price estimate implies 10% upside to the current market price.

Microsoft acquired aQuantive for $6 billion in 2007, which now powers Microsoft's advertiser and publisher network. The company also announced that it will unveil some new tools and partnerships with companies like AppNexus and MediaMath that will help customers tailor and measure the impact of ads.

After some complaints from customers, Microsoft reassured users that it is investing in its display ads solution and improving the customer targeting technology available to advertisers as well as making the overall design easier to use. Display ad spending in the U.S. is expected to reach $15 billion by 2012 and Microsoft is looking to capture a larger share of this growing market going forward.

Microsoft had revenues of $2.52 billion from the online services division in fiscal year 2011, but it's still bleeding with an operating loss of $2.55 billion in the same year.

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