Speaking at an online advertiser conference sponsored by Microsoft's MSN Internet division, Ballmer said the Redmond, Washington-based software giant will begin rolling out its own Internet search technology within 12 months.

Microsoft currently gets its Web search results from Inktomi, and Overture Services supplies its lucrative paid-search advertising. Both of those companies are now owned by MSN rival Yahoo.

Ballmer conceded that Microsoft made a strategic mistake when it chose to use outside companies for Web search rather than making its own investment in the up-and-coming technology.

"That's probably the thing I feel worst about," he said.

Nevertheless, Ballmer vowed that Microsoft would more than make up for lost time. "We're committed to do it very, very, very well. I think you'll see a lot of good competition in the area," he said, vowing that Microsoft would become "absolutely the best" in search.

Ballmer said it was premature to comment on whether the company will build its own search advertising technology, but said that any such effort would take a back seat to Web search.

"We're evaluating what we're going to do in that area," said Yusuf Mehdi, MSN's vice president of information services. "There is a lot of opportunity for innovation, even in paid search."

Mehdi said Microsoft was happy with its relationship with Overture Services, with which it shares advertising revenues. "It's a very attractive financial deal for us," Mehdi said.

European regulators ruled on Wednesday that Microsoft remove its Windows Media Player from the Windows operating system within 90 days. If that ruling survives appeal, analysts said it could be difficult for Microsoft to bundle new software -- such as search features -- into Windows.

Many suspect that Microsoft wants to build Web search into its next desktop operating system, code-named Longhorn.

© Reuters