Yahoo! CEO celebrates getting into bed with Gates

When it comes to online advertising, Yahoo! and Microsoft are both on the same team, Yahoo! CEO Terry Semel said.

Semel spoke Friday to a group of advertisers to emphasise the opportunities of online advertising and the industry's mission to establish credibility.

"It's important... for companies like Yahoo! and Microsoft to start working more together because we have a common goal - to take a greater and greater share of the marketplace," he said, speaking to Microsoft MSN's more than to the 500 advertising clients gathered here for the software company's fifth annual ad summit.

Semel's guest appearance seemed out of place to more than a few attendees because of the longtime rivalry between Yahoo! and MSN. But MSN's chief revenue officer, Joanne Bradford, attempted to clarify the oddity.

"Everybody thinks I'm crazy for inviting the competitor into the house. But the competitor is also our biggest partner," Bradford said, referring to MSN's relationship with Yahoo!-owned Overture Services for search engine advertisements.

MSN's referential attitude toward Yahoo! comes at a time when search is a top priority for the company - one that Microsoft CEO Steve Ballmer lamented it had not focused on sooner. It also reflects MSN's reliance on Yahoo! for commercial search, which is expected to comprise nearly half of the industry's revenue of $8bn this year. Symbolically, it has the effect of pitting the two companies against number one search player Google.

Moreover, it presents a united front to some of the web's largest potential advertisers and agencies at a time when the industry is gaining traction. Online advertising has had several straight quarters of positive growth, after years of declines, following the dot-com bust. Yahoo! and Microsoft are both trying to woo an even greater share of traditional marketing dollars from agencies for the Web, and they're doing that by offering new opportunities in video and brand advertising and search.

MSN's two-day summit is designed to influence advertisers to spend more money online. The company's tactics include releasing new research that shows that online advertising has a greater effect on offline sales than do some other media. In addition, it is offering educational seminars and parading out top executives to describe the future of advertising.

MSN's Bradford said that as the online ad industry seeks to move the needle of online spending from only about three per cent of traditional ad budgets to eight per cent in coming years, the biggest web companies are competing for growth - and not their rivals' business.

To this end, Greg Stuart, president of the Interactive Advertising Bureau, said the IAB, whose members include both Yahoo! and MSN, is working on developing measurement standards for impression counts, among other standards, to advance the market, making it easier for advertisers.

Semel, former head of Warner Brothers and chief of Yahoo! for three years, said in a "state of the industry" speech that broadband is helping improve content and ad opportunities, especially brand ads like video. He also emphasised the high-growth business of sponsored search, which is akin to direct marketing. As the industry grows, direct marketing and brand advertising are set to be the dominant channels online, he said.

"We want you to think about cross-network buying," Semel said. "I see where we're going, but I hope we can all do it together."

Stefanie Olsen writes for CNET News.com