Add to that how Excel killed Lotus 1,2,3 -- and how MS-Word (almost) killed WordPerfect.
MSFT's "category killer" strategy of bundling (shoddy) software with the OS or Office and putting it on the desktop (e.g.- Outlook, MS-IE, Media Player), won't work anymore.
Where the average user "had to" buy MS-Office to complete a project for work or school, they can now use Google Docs, Open Office, etc.. Giving away shoddy software to make it unprofitable for competitors to sell anything in that category only works in the unconnected world.
Search and ad serving take more than a few strategic acquisitions... A company needs to have aggressive ad sales staffing, and their crawling and indexing needs to be a better mousetrap.
MSFT is a top-down corporation. Employees are drones that only know how to follow the leader. Microsoft hasn't "innovated" anything since MS-DOS, (they didn't even create "windows" -- that was just another idea they "borrowed").
If I were Bill Gates I'd be tired of being two steps behind. I'd take my money and invest in alternative energy start-ups, recreational space travel, or something more fun. It must be frustrating trying to be the gatekeeper on an industry that no longer needs him.
MSFT trying to be #1 in search and ad serving is almost as futile as if they had invented the telegraph and wanted to keep others from using the telephone.