Google Makes Ad-Grab

Its purchase of a video-game ad-placement start-up brings another revenue stream.
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Chalk up another potential ad market for

Google

(GOOG) - Get Report

.

The search giant has agreed to buy Adscape, a start-up that places advertisements in video games, for $23 million, according to

Red Herring

magazine.

The move puts Google, which has been trying to

expand aggressively beyond its staple of online ads -- albeit

with mixed results -- into another new, potentially high-growth advertising market. Google has recently stepped up efforts to enter radio, print and video advertising, but has yet to show significant revenue from those ventures.

The acquisition, which had been rumored for some time, also will heat up Google's rivalry with

Microsoft

(MSFT) - Get Report

. The software behemoth entered the market in 2005 through a $200 million acquisition of Massive, an ad start-up company.

But unlike Microsoft, which makes the popular Xbox video game consoles and is likely to limit ad placements to that platform only, Google may be free to target other consoles such as the

Nintendo

(NTDOY)

Wii and

Sony's

(SNE) - Get Report

PlayStation.

"Microsoft plus Massive Inc. will probably be tied to the Microsoft Xbox live platform only," wrote Global Equities Research analyst Trip Chowdhry, in a January research note which reported that Google's Adscape acquisition was likely in the works. "Google plus Adscape media will probably be platform-agnostic, delivering in-game advertisement to not only Xbox live, but also competing game platforms from Sony Playstation, Sega, Nintendo and other niche platforms." Chowdhry has no business relationships with Google or Microsoft.

Still, Microsoft may have a lead over Google when it comes to this emerging market, because Massive was more mature than Adscape, as is reflected in the price tags for each company. Officially launched in February 2006, Adscape had raised $3.2 million in venture capital. Massive, meanwhile, started in 1998 and had raised $28.l million in venture capital.

Google and Microsoft are becoming increasingly competitive as of late as

Microsoft becomes more serious about courting advertising dollars, while Google

pushes to have its Web-based platform adopted over Microsoft's more desktop-oriented approach.

Both serious competitors will now take the games to another level.