Bloomberg.com: U.S.

By Amy Thomson

June 18 (Bloomberg) -- Microsoft Corp., the third-largest seller of Internet ad space in the U.S., will add television spots to its advertising system by acquiring Navic Networks, stepping up competition with market leader Google Inc.

Navic, a Waltham, Massachusetts-based company with about 110 full-time employees, places ads on TV, directing the spots at users who watch particular types of shows. The companies didn't disclose terms of the deal in a statement today.

The acquisition puts Microsoft in competition with a Google program that lets advertisers create TV commercials and choose the networks and times that they air by filling out an online form. Microsoft, based in Redmond, Washington, is betting that a combination of online and TV ads will bolster its Internet unit after it dropped a plan to buy Yahoo! Inc.

Navic handles television commercials for companies such as Allstate Corp., Ford Motor Co., Wal-Mart Stores Inc. and Nissan Motor Co. Microsoft, the world's largest software maker, will add Navic's sales to the same division that runs its online services, which was the company's only money-losing unit last quarter. The division's loss widened to $228 million in the quarter ended March 31, from $171 million a year earlier.

Microsoft fell 3 cents to $28.77 at 9:45 a.m. New York time in Nasdaq Stock Market trading. The stock had dropped 19 percent this year before today. Mountain View, California-based Google, down 18 percent this year, declined $1.70 to $567.76.

Google accounted for 28 percent of the $21.1 billion in U.S. online ad spending last year, according to New York-based research firm EMarketer Inc. Yahoo took 16 percent, while Microsoft accounted for 6.7 percent.

Microsoft walked away from talks to acquire Sunnyvale, California-based Yahoo for $47.5 billion on May 3. The acquisition would have tripled Microsoft's share of U.S. search queries. The deal also would have given the company a larger share of the global online advertising market, which Microsoft expects will nearly double to almost $80 billion by 2010.

Yahoo also rejected a separate Microsoft offer for its search business last week, opting instead for a partnership with Google.

To contact the reporter on this story: Amy Thomson in New York at athomson6@bloomberg.net

Last Updated: June 18, 2008 09:46 EDT

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