"If you break that down into display and search, there's a better story on the display side," said Chris Liddell, Microsoft's chief financial officer, referring to the ad revenue.

While Microsoft did not provide specific numbers about search versus display ads, Nielsen//NetRatings estimated Thursday that MSN's revenue from image-based ads increased 28% from the last quarter of 2005, based on AdRelevance data.

Liddell also said in the earnings call that Microsoft was disappointed it had recently lost ground in search. "We lost market share during the quarter--we're clearly not happy with that," he said. But, he added, "we continue to take a long-term view on this business." According to comScore Networks, MSN search claimed just 10.5% of searches last month--down from 13.7% at the beginning of the year.

All of Microsoft's online service businesses posted a loss of $155 million last quarter--down from a profit of $58 million during the same period last year. Much of that decline stemmed from a loss in revenue from dial-up subscribers.

Revenue growth was offset by high costs from new hires and investment in developing adCenter, Windows Live and other online properties, Liddell added.

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