In March, Steve Ballmer, Microsoft's big boss, stood, bold as brass, before journos, and threw down the gauntlet at Google's feet.

He declared at the MIX08 conference in Las Vegas - that his company will catch up with Google in online advertising and web searching.

"So it may be my last breath at Microsoft, but we're going to be there, working away, building share", said Ballmer during a bantering question-and-answer session.

"In online, yeah, it's Google, Google, Google, and we're in the game. We're just the little engine that could", joked Ballmer.

Well who's laughing now?

Since then, Microsoft's repeated bids to buy Yahoo - an acquisition that was central to its internet plans - have been thwarted.

And Ballmer has had to take a deep breath (not his last as he vowed) and admit that Google is way ahead in the online search arena, and Microsoft's tardiness to get a grasp in this area could now hit its profits.

Ballmer admitted to the BBC that Microsoft had become a "David" in search alongside the "Goliath" of its arch-rival Google.

He said: "Do I wish we'd started the investment in search a few years earlier? Yes".

"We may be the David up against Goliath but we're working on it."

Microsoft is going to suffer, he added, not because of its technology but the loyalty Google has won amongst online advertisers.

"We probably missed the power of the advertising model, not so much the technology", he said.