One of Microsoft’s main arguments in its quest to buy Yahoo is that the two companies could expand research and development spending on Web search and digital advertising. While Yahoo quietly mulls Microsoft’s $45 billion unsolicited offer, Microsoft showed where its research money has been going.

Microsoft held its 4th annual Demo Fest, an event that shows off the latest digital advertising technologies being developed by researchers in Microsoft adCenter Labs. There were some very interesting demonstrations including the two videos we have here. Here is Microsoft’s press release that describes some of the other technologies that were on display.

Arun Surendran, senior applied researcher at adCenter Labs, demonstrates an application that uses speech recognition to serve ads based on content discussed in the video.

Here’s Philip Lee, research analyst at MSN adCenter, who is showing a new technology that allows advertisers to place different images within videos. They called it “dynamic product placement.”