Last week, I had a chance to meet up with the folks at Xfire, a two-year firm in the online gaming space. And, yes, many of the employees are young, smart, and avid gamers.

But when talking to the CEO, it becomes clear that this is a serious business. That is, the gaming world is where advertisers can reach a tough demographic: males between 14 and 34.

So this week, Viacom (NYSE:VIA) plunked down $102 million for the company.

Now, it looks like Microsoft (NASDAQ:MSFT) wants a piece of the action. According to The Wall Street Journal, the company is in the process of purchasing Massive. The price tag ranges from $200 million to $400 million.

Basically, Massive has a platform that can deliver advertisements on video games. True, video game ads -- such as product placements -- have been a long tradition in gaming. However, because of the use of the Internet, Massive can allow advertisers to change their ads -- in terms of the context of the game, current fads, or even geography.

According to a report from the Yankee Group, in-game advertising is expected to grow at a rapid clip. But by 2010, it's still not going to be a billion dollar market. Instead, the projection is for $732 million.

Why? Keep in mind that if a game is compelling, people will pay for it. Look at the online game "World of Warcraft," which charges $15 per month and has over 6 million subscribers. Yes, that's a cool $90 million per month, or $1 billion per year. Sure, ads will contribute some revenues, but likely only a small percentage of the overall amount.

Then what's Microsoft's thinking? Well, Microsoft is in an all-out fight with Google (NASDAQ:GOOG) for the online advertising market. To this end, Microsoft is about to launch its adCenter technology. If it can now offer another venue -- that is, gaming -- it makes its offering more compelling.

While Massive will not be enough for Microsoft to win against Google, it certainly will differentiate the company from its rival. And this is no easy feat in the intensely competitive world of search, where firms seem to always match each other feature by feature.

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Fool contributor Tom Taulli does not own shares mentioned in this article.