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Microsoft's Internet business (MSFT) got some good press this summer, when MSN's share of search queries briefly jumped (before dropping again), and the division's ad revenue continued to accelerate.  The latter trend is truly good news.  But don't confuse this and other headlines with online success.  Microsoft is still running a distant No. 4 in the online wars--the same position it has held for the last 12 years--and there is no real sign that this will ever change.

Why shouldn't we view MSN's recent ad acceleration as a sign that Microsoft is finally beginning to do what it did to Lotus, Apple (round one), WordPerfect, et al--(steamroll them)?  Because, over the past year, MSN's expense growth has vastly exceeded its revenue growth, even when you look only at advertising revenue.

Did you know that MSN is currently losing about $1 billion a year (run-rate)?  That's right, $1 billion.  On about $2.2 billion of advertising revenue.  (See this page for details).  Unless Microsoft's disappearing access business is losing a lot of money--which we doubt--all of the division's losses are attributable to the advertising and media business.  That means that MSN is losing nearly $0.50 for every $1.00 of advertising it sells." (Silicon Alley)