REDMOND, Washington: Microsoft says it is ready to respond to online challenges posed by Google and its ilk with an expansion beyond its Windows and office software businesses.

Ceo Steve Ballmer told last week's annual analysts' meeting that the software giant is "hell-bent and determined to allocate the talent, the resources, the money, the innovation to absolutely become a powerhouse in the ad business."

Microsoft also announced the creation of an applied research group focused on search and ad technologies. The Internet Services Research Center will work closely with MSN and other product groups across the company.

Its key aim will be innovation in search and ad technologies and their more rapid delivery to advertisers and customers.

Ballmer said new sources of revenue were necessary if Microsoft hoped to deliver "superior financial returns in the future."

He was bullish about the company's prospects, stating he saw more opportunities for growth in the next ten years than in the past 30 years.

In addition, he revealed Microsoft would add free web services to its own well-known desktop applications, in direct competition to similar services now offered by its rivals.

Ballmer said nearly every software application would be transformed with the addition of a web-services component within three to ten years.

Data sourced from New York Times; additional content by WARC staff