Only some of Microsoft's consumer software titles are generating any real money, and a predicted further decline in revenue may push Microsoft to adopt some version of a free, ad-supported software model, writes CNET, citing Microsoft internal documents that it has obtained. Although Office and Windows are vastly profitable, others - such as Works or Money - are not. "The outlook for the packaged consumer retail software market is poor…and consumers appear less willing than ever to buy software applications off the shelf," according to a Microsoft strategy paper.

That, coupled with the possibility that others might offer free software, has apparently led to Microsoft's considering free, ad-supported versions of some of its consumer titles.

An MSN strategy paper points to the success of Google's ad-supported Gmail. The paper suggests non-targeted ads for low-cost services, and targeted ads - based on "an exchange of user information" - for high-cost services, citing adware firm Claria, which claims ad rates 6-20 times those of traditional web advertising because of its ability to target.

Microsoft is now testing its own, AdCenter ad system, which combines context with user demographic information.