Last month, I incurred the wrath of not a few Google (NASDAQ:GOOG) fans when I criticized a proposed deal with Sun Microsystems to push Star Office. I said then, and still believe, that Google's strength isn't in applications, but in search and targeted advertising. There is, after all, a reason more than 90% of Google's revenues come from ads. And you won't convince me that replacing the classic desktop dovetails with that business. I know many of you think including pitches in Word docs -- presented while we analysts hunt and peck our way through stories like this -- would be no biggie. Well, it would. There are few things I hate more than having my writing rhythm broken by interruptions.

Yet as I pooh-poohed the notion of an all-out war with Microsoft (NASDAQ:MSFT) to end Windows' PC hegemony, I had to admit Google was sitting on $7.6 billion in cash and that it would put that moola to use somehow. Fellow Fool Rick Munarriz offered some excellent theories recently, but none makes more sense to me than seeing the search king acquire Motley Fool Stock Advisor pick TiVo (NASDAQ:TIVO). Allow me to explain.

The slums of Madison Avenue
The white-shoe environs of Madison Avenue are in desperate need of a polish. Consider: Publicis' ZenithOptimedia research arm in July cut its 2005 television ad spending estimate by $2.3 billion while raising its target for digital pitches by $1.2 billion. The report provides the most compelling data I've yet seen for how marketing budgets have changed for the worse for the big three networks.

Google is largely to blame. A check of the company's third-quarter 10-Q filing (opens a pdf file) shows total advertising revenue reached $4.17 billion for the first nine months of the year and $1.56 billion from July to September. Impressive, eh? Yep, and it gets to be more so in light of ZenithOptimedia's projection, which is for $16.4 billion overall in full-year 2005 Internet ad spending. If Google does nothing more than duplicate its first-quarter performance, then its full-year ad sales will exceed $5.5 billion, or 34% of the entire online market. If it duplicated its third-quarter performance, we'd be looking at something like 39%.

Investing in the perfect pitch
Google has proven to be wildly successful at matching digital pitches with search criteria. Now dozens of others are seeking to create precision advertising platforms of their own, and for TV no less. Take Cisco's (NASDAQ:CSCO) proposed $6.9 billion buyout of Scientific-Atlanta, for example.

The pairing would couple Scientific-Atlanta's set-top boxes for delivery of digital entertainment with Cisco's vast array of data networking equipment. No doubt there would be a package tailored for video on demand somewhere in our future if this deal goes through. What may not be so obvious is how such a package could also provide critical tools for targeted advertising. Remember: Cisco sells routers. Routers are smart. They know what they're carrying, and they can be programmed to deliver customized content. Content like ... ads.

Or consider the work being done by privately held Invidi, which says it hawks "targeted advertising." Among its potential customers is Time Warner's (NYSE:TWX) cable group. BusinessWeek reported in July that Invidi's system -- which tracks channel-surfing habits to estimate the age, gender, and probable interests of a viewer for the purpose of identifying appropriate ad content -- could go live with some Time Warner customers by year-end.

Yahooligans on parade
And, of course, there's the long-awaited promise of convergence. Just recently, TiVo and Yahoo! (NASDAQ:YHOO) signed a deal that would allow some users to program their TiVo over the Web. This, in itself, shouldn't be cause for alarm at Google. What should is the relationship. Remember: It wasn't long ago that TiVo and Netflix (NASDAQ:NFLX), also a Stock Advisor pick, considered a partnership to deliver movies on demand. The probable channel for this, of course, was the Web. The last thing Google should want is to see TiVo cozy up to any Web-savvy partner, especially a well-capitalized rival like Yahoo!

Worse for Google are the deals TiVo has struck with Apple and Sony to bring the TiVoToGo service to the white-hot video-enabled iPod and the PSP. The arrangements extend the notion of what we've termed "on demand" by enabling any user to get their programs anytime and view them anywhere. And here, too, the Web is a key enabler.

The skinny on downloads
Talk of convergence inevitably leads to discussions of the so-called digital living room, where PCs will live alongside consumer electronics equipment, creating a joyful marriage of Web and TV. Yeah, well, it's never happened, despite noble attempts such as AOL TV, of which TiVo was a key element.

The idea wasn't bad. It's just that back in 2000, downloading anything to your TV would have been, at best, a chore. You'd have been among the hardiest of diehards to even try it. Which meant that all you really got from interactive TV 1.0 was a Web browser embedded into your big screen. Technology has improved dramatically since then. Broadband is more widely available. WiFi is an accepted standard. And downloads are all the rage. Indeed, BusinessWeek reports that Apple's iTunes store has 10 million regular customers of its music and video downloading service.

An interactive future
And that means a blending of the Web and TV is practically inevitable, in my opinion. All that's still missing is a model to monetize it. Google and TiVo -- together -- can create that model. Think about it. Google has a massive network. It has an algorithm for searching and organizing anything fast. It has a platform for targeted advertising. It has invested heavily in making broadband available anywhere, including over power lines. And it has a nascent technology for speeding the delivery of certain content. In other words: Google knows how to find, deliver, and organize any kind of digital content, including video. And do it really, really fast.

TiVo, on the other hand, has a popular and intuitive platform for TV that consumers increasingly prefer. Its users obviously don't like ads, but recent tests show some promise for 30-second spots that lead to longer movies for those interested. And its ability to store downloads is limited only by the size of the hard drive the box employs. This shouldn't be an issue because recent innovations have geometrically expanded storage capacity for most drives.

Throw away your PC
Are you beginning to see how this combination works? With so much downloading, there's going to need to be a way to organize the digital content. That has been the domain of the PC, and that's why we've always assumed it would be either Apple or Microsoft that brought the digital living room to life. It's easy to forget that TiVo's smarts and user interface have contributed to its popularity. And those smarts -- tracking your viewing habits -- are exactly what advertisers crave, and mimic how Google operates on the Web.

It's also easy to forget that Google sells a search appliance whose technology for rapidly organizing content has proven highly effective. Or that it has some of the smartest browser developers in the world, many hired away from Microsoft. Were the two to join forces, it's very easy for me to envision a smarter TiVo that would allow you to pause a football game, bring up an unobtrusive browser, and look up the answer to the night's trivia question before the experts spoil it for you. And each search would bring you more contextual ads, or maybe the opportunity to download a short film on ESPN's Game Plan football service, organized with other digital content in PC-like fashion. See what I mean? The possibilities for blending Web, TV, and ads are nearly limitless. But Google is best suited to bring it all together, and TiVo is the best delivery device.

The Foolish bottom line
Finally, think about this: Google CEO Eric Schmidt recently told TheNew York Times that " ... if we can figure out a way to improve the quality of ads on television with ads that have real value for end-users, we should do it." That sounds like a dare, doesn't it?

Expect Google to rise to the challenge. This is, after all, its core market we're talking about. Online advertising could be $16.4 billion this year, and should continue to grow by double digits for the foreseeable future. But that won't sustain a triple-digit grower like Google for long. It must reach higher. With TV, it can. The television advertising market is -- wait for it -- projected to be $148.2 billion in 2005 alone, according to ZenithOptimedia.

So, Sergey, Larry: You've put the technology in place. You know, as we do, that TiVo needs a suitor. You've got a tremendous cash hoard waiting to be put to good use. And we're hearing that dozens of wannabes have a mind of taking your advertising delivery model to TV. Only one question remains: What in the heck are you waiting for?

Google set the land speed record for going from Rule Breaker to Rule Maker and has made thousands rich in the process. Who will be next? David Gardner and his team of Foolish analysts aim to find out, and their search has brought generous returns to subscribers to Motley Fool Rule Breakers . The Rule Breaker portfolio is walloping the market by more than 18% as of this writing. Take a risk-free trial and you'll get access to all 30 buy reports. All you have to lose is the prospect of better returns.

Microsoft is a Motley Fool Inside Value selection; Time Warner is a Stock Advisor pick.

Fool contributor Tim Beyers still has his DVR. He pines for TiVo. Sigh. Tim didn't own stock in any of the companies mentioned in this story at the time of publication. You can find out what's in his portfolio by checking Tim's Fool profile. The Motley Fool has an ironclad disclosure policy.