NEW YORK (Bloomberg) — Microsoft Corp. chief executive officer Steve Ballmer may start a fight to oust Yahoo! Inc.'s board and pave the way for a takeover, after the Internet company let his deadline pass without agreeing to a deal.

Ballmer gave Yahoo an ultimatum to accept a $44.6 billion bid by yesterday. To crack Google Inc.'s dominance of the Internet advertising market, Microsoft is looking to handle more web searches, sell advertisements with more graphics and videos, and be able to target campaigns and track their success.

Microsoft, the world's biggest software maker, can't afford to let Yahoo go, said Sachin Shah, an analyst for ICAP Securities in Jersey City, New Jersey. The company has spent billions creating a web search engine and technology to sell ads, and buying Internet companies such as AQuantive Inc. Acquiring Yahoo would give it the No. 2 spot in the $41 billion online ad market.

"Microsoft does need Yahoo," said Shah, a merger- arbitrage analyst, in an interview with Bloomberg Television this week. "If they didn't, they would have walked away a long time ago."

Losses at Redmond, Washington-based Microsoft's Internet business widened to $228 million last quarter, and sales rose to $843 million, at the low end of company forecasts. Google, owner of the most used Internet search engine, had $3.7 billion in revenue in the period, excluding sales passed on to partner sites.

Advertising linked to search results accounts for more than half of Internet ad sales. Google handled six times more queries in the US in March than Microsoft, according to ComScore Inc., a Reston, Virginia-based researcher.

"Microsoft is committed to completing the transaction and is unlikely to walk away from the deal," Citigroup analysts Brent Thill and Mark Mahaney in San Francisco wrote in a note to clients April 25.

Microsoft fell 6.2 percent to $29.83 in Nasdaq Stock Market trading April 25, a day after reporting sales of its Windows personal-computer software that fell short of analysts' estimates. The value of the bid, originally $31 in cash and stock, has dropped to $29.68.

Some Microsoft investors say Yahoo CEO Jerry Yang would lose a proxy fight unless he finds an alternative that will boost his company's shares. Much of the stock is held by arbitragers who would accept $31, said Walter Price, a portfolio manager at RCM Capital Management in San Francisco. The firm owns Microsoft and Yahoo shares.

Yahoo declined 1.8 percent to $26.80 on April 25.