Microsoft Corporation has evolved a broad plan to incorporate the targeted advertising content generated by its new AdCenter system in several digital services extending beyond the internet search realm. The company intends to use this as a means to intensify its offensive against Google.

The company is holding the MSN Strategic Account Summit at its headquarters, where chief executive officer Steve Ballmer is expected to provide an insight into the plan to some 700 representatives of major advertisers and agencies. The details will include how the company plans to create a one-stop shop for contextual, search and display advertising.

Microsoft says that all the ads on MSN in the U.S. are now provided by the company’s own advertising network and that it is now geared to compete on a full scale with Google and Yahoo!.

The company will take advantage of the situation whereby its software is mostly present in all forms of gadgets like its own Xbox 360 or mobile handsets in order to have a wider target audience for the plan. It feels this will help it to bridge the gap with Google as far as the search advertising business is concerned.

Search advertising revenue of Google has seen significant growth in the latest quarter while that of Microsoft has slid because it has shifted to its own network from the earlier practice of relying on Yahoo for advertisements.

Microsoft is just rolling out the AdCenter internationally. It has become the sole provider of search ads in France and Singapore, while testing is expected to begin for advertisers in the U.K. The company claims that most of the clients who were part of the AdCenter pilot program have experienced better “conversion rates,” — the number of search ads turning into sales.

Analysts say Microsoft has now realized that online advertising is one business, which it can rely on with investments even as its Windows and Office products get saturated and the software industry as a whole seems to be moving towards an online model. Google is an example to follow in this regard.

Even chairman Bill Gates admits that Google is a model. He told a questioner at the Summit, “They’ve done a great job on their search, and what they’ve done with advertising.” He said Microsoft will “keep them honest in the sense of being able to be better at a number of those things.”

A senior company executive, Christopher Payne, corporate vice president of MSN Search, acknowledged to the audience that the company is a distant third in market share behind Google and Yahoo. “I’d like not to be in the No. 3 spot, and I think the key to not being in the No. 3 spot is innovation,” he said as he outlined some of the advances the MSN Search has been working on, especially in areas like image searching and aerial views.

Meanwhile, The Wall Street Journal Wednesday featured a story saying Microsoft had held company meetings to discuss a possible tie-up with Yahoo to compete with Google in a more effective manner. The newspaper, citing sources watching the situation, said discussions did not seem to be active, but the company is likely to consider a deal for an equity stake in Yahoo.

Yahoo at its current stock price is valued at around $45 billion and any offer would require a premium on this, besides approval from the shareholders of both the companies.

Analysts say any such combination will make no sense at this point as Microsoft has already invested heavily into its search-based projects to take on Google and Yahoo too.

Microsoft refused to comment on the report. A company spokesperson said the company has plans to invest even more heavily in its own algorithmic search engine and interactive advertising network. These projects have already incurred hundreds of millions of dollars already.

The company revealed it is acquiring privately held web analytics company DeepMetrix, which is expected to provide analytics capabilities into future versions of AdCenter.