Microsoft Corp. (Nasdaq: MSFT) and Skype Ltd. plan to use video advertising to monetize their Skype-powered video chat on future Windows Phones and PCs. (See Microsoft to Buy Skype for $8.5B and Skype Gives Microsoft a Much Stronger Voice.)

Microsoft CEO Steve Ballmer said the two companies were looking to partner on video ads even before Microsoft decided to buy Skype. It's one of the biggest opportunities they see moving forward, said Skype CEO Tony Bates, speaking on a conference call Tuesday.

Bates said video-based ads will have a 45 percent compound annual growth rate in revenues over the next few years, growing from an admittedly small base, especially in the United States.

"We just started in ads," Bates said. "We have the ability in the Windows client to put a home page takeover type ad. There will be a number of other things. ... We think advertising is a very powerful monetization stream for us."

Microsoft will provide the sales force, and Skype will bring its 663 million strong user base to the partnership. Bates said that they will approach the market from a rich-media perspective with pop-out ads and animated spots, an experience he believes will fit the user base, which is used to immersive experiences.

— Sarah Reedy, Senior Reporter, Light Reading Mobile