Microsoft acknowledged that it had lost ground in the search marketplace.

"Advertising revenue grew 20 percent over the quarter and we're happy with that," according to Chris Liddell, chief financial officer for Microsoft, who noted a boost in image-based ad revenue over Q4 2005. "On the search side, we lost market share, and we’re clearly not happy with that,” he said.

According to ComScore, MSN came in third in share of online searches in December 2006, with 11 percent, compared to Google’s 47 percent and Yahoo’s 28 percent.

“We continue to take a long term view of this business,” added Liddell regarding the firm’s search ad platform. “We are getting advertisers onto our platform and turning the corner on revenue on a quarter-by-quarter basis. We still expect to get revenue per search channel equal to where we were a year ago, by the end of this year.

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