Microsoft Chief Software Architect Ray Ozzie attempted to clarify Microsoft's Web-based advertising and services strategy and lay a case for why buying Yahoo is integral to that plan on Wednesday.

In his keynote at the MIX 08 conference in Las Vegas, Ozzie said Microsoft realizes that having a vibrant and relevant portfolio of Web-based services and content, as well as innovative options for commerce and building communications, is essential to develop a "highly engaged, well-targetable audience" for advertising. When it comes to the Web, advertising is the primary way Microsoft will monetize its investments there, he said.

Microsoft is doing all it can "to use the resources we have to ensure there is a vibrant advertising ecosystem," Ozzie said. "If you wonder why we're so interested in Yahoo and its creative people and properties, I hope this makes it a little bit clearer."

Microsoft has been steadily building a wider portfolio of services and content over the past few years to drive its advertising strategy to compete with Google, meeting with little success.

In an attempt to give the strategy a major shot in the arm, Microsoft last month offered to purchase Yahoo, the struggling number-two player in online advertising, for $44.6 billion. Yahoo's board rejected the bid, but Microsoft seems determined to buy the company, even if it has to be a hostile takeover. Still, even if the deal happens, it's unclear whether it will do much to help either company compete with Google.

Ozzie acknowledged that Microsoft has been working on its Web-based advertising plan for several years, both through acquisitions of companies such as aQuantive and its investment in Live services, but that 2008 will be the year the strategy "finally comes to light."

Ozzie, who seemed more self-assured about his increasingly visible role as Microsoft's technology visionary during his keynote on Wednesday, also revealed the most detail to date about how the Web is transforming all of Microsoft's products. The company in the past few weeks has made a series of announcements that expands its software-plus-services strategy to make more of its traditionally packaged software available as services for both consumers and business customers.

Earlier this week, the company expanded its hosted offerings for businesses by allowing them to use its e-mail software Exchange Server as a hosted service, as well as Office SharePoint Server 2007, a content management and collaboration tool, and Office Live Meeting, for audio and video conferencing over the Web.

Microsoft will continue this year to reveal more facets of its strategy to "drive the reconceptualization of our software to embrace this world of services," Ozzie said. Microsoft sees the Web as a hub that must be a "mesh" connecting all of its products and is approaching this with four goals in mind: To use the Web throughout its products to connect devices, entertainment, business, and development.

"All of our software will be significantly refactored to reach a level of symmetry" between software used on premise, software as a service, and services in the cloud, Ozzie said.

For example, on the business side, Microsoft plans to use a new service called Office Live Workspace to be the "central hub of our productivity strategy" for individuals, he said. Office Live Workspace lets users access and share Office documents online. On the business side, Microsoft's Office SharePoint Server will fit the same role, Ozzie added.

Microsoft also will give developers more ability to develop services in the cloud. During his keynote, Ozzie unveiled a beta of SQL Server Data Services, a set of database services that "bring[s] the benefits of SQL Server for developers into the cloud," he said.