Microsoft is searching for a major executive to run its world-wide online sales, said several sources close to the situation, even as talks with Yahoo about a deal to partner in its search and display advertising businesses continue.

“They need to find a way to make money in display,” said one source close to the situation. “Or, I guess, find a way to not lose quite so much.”

The software giant has been trying to build its online business for many years now, spending a lot of money and not getting very much traction.

In its recent quarterly results, in fact, Microsoft’s online services got hit badly, with a 14 percent decline in revenue from a year ago to $721 million. Losses doubled to $575 million.

Sources said Microsoft (MSFT)–which has hired headhunting firm Spencer Stuart to conduct the search–is looking for more execs to turbocharge the situation, with one criterion being that the person hired is “another ambassador to Madison Avenue.”

Last fall, it did that by hiring Time Inc. ad exec Robin Domeniconi to take over as the new VP, U.S., Microsoft Advertising.

That’s why the new sales candidate the company is looking for might only be for someone to lead Microsoft’s international ad sales, since the exec in charge of that business left in December as part of a mass of changes in the wake of the hiring of digital head Qi Lu.

Those changes included the departure of that exec, Global VP of Sales Bill Shaughnessy, as well as its top online ad sales exec, Brian McAndrews, and the rejiggering of its online sales unit.

In that switch, Microsoft said in a press release: “The field sales organizations in the Online Services Group will move to Microsoft’s centralized Sales, Marketing and Services Group led by chief operating officer Kevin Turner. This group, called Consumer & Online, will be led by Corporate Vice President Darren Huston and will include the Global Advertising Sales and Services organization, led by vice president Bill Shaughnessy.”

The move to centralize, according to sources, has been controversial within the company, since it means all sales are being lumped into one megagroup.

That could all change dramatically again if there is any success in the talks Microsoft has been having with Yahoo (YHOO) about outsourcing its online display sales to the Internet giant. The pair have been discussing partnering over search and advertising.

While such a deal might not happen–Yahoo has been especially reticent to separate its search and display businesses–the two sides have been discussing several scenarios in a bid to compete with online giant Google (GOOG).

Among the latest ideas is one in which Yahoo would take over both search and display advertising sales and Microsoft would run the tech behind the scenes.

Such a deal would be a major shift for both companies in their business focus and would also tether them together.

The one truly interesting factoid in The Wall Street Journal’s piece about the efficacy (or lack thereof) of Facebook’s engagement ads today was this one about its results in the graphical ad business versus rival MySpace:

The company says 70 of the U.S.’s 100 largest advertisers have advertised on its site since 2007. But its share of total number of U.S. online display ad views was just 1.1 percent, according to market research firm comScore Inc., in its most recent report in June.

News Corp.’s Fox Interactive Media Unit, which includes rival MySpace.com, is the market leader with 15.9 percent of display-ad spending, according to comScore.”

This is what is known in the BoomTown lexicon as a classic What-chu-talkin-bout-Willis? moment.

That’s an especially astonishing number, because MySpace has been steadily losing audience leadership and, more importantly, the growth race to Facebook over the last year (see the Journal graph here).

Nonetheless, MySpace, the unit of News Corp. (NWS) that makes up much of FIM, seems to be making up for it in actually selling the ads needed to make social networking profitable.

And, while Facebook has been beefing up its ad sales force on Madison Avenue–it turns out that it is a media company, after all, and not a utility!–so has MySpace, mostly from ex-employees of Yahoo (YHOO), which still dominates the category, despite its numerous missteps.

Both Facebook and MySpace will, as will everyone in the graphical ad space, get hit hard by the econalypse in the advertising space online, of course.

But, given these stats, Facebook clearly has to start seriously upping its ad performance to at least match MySpace.

(This site, as well as The Wall Street Journal, are also owned by News Corp.)

To be fair, the whole market was dragged down today due to worries about a deepening recession. But Yahoo’s ever-decreasing share price has got to have the company and its investors mighty worried.

Hitting lows not seen since the dot-com doldrums of 2001 and 2002, Yahoo closed at $15.58–down $1.38 or 8.14 percent–giving the troubled Internet giant a market cap of just $22.08 billion.

That is almost exactly half of what Yahoo leadership could have gotten if the company had accepted a takeover offer made by Microsoft at the beginning of February.

Nonetheless, even at these bargain-basement prices, sources at the software giant said that Microsoft (MSFT) CEO Steve Ballmer has declared repeatedly at internal gatherings recently that he is not going to make another offer for Yahoo (YHOO) no matter how low it goes.

This seems a little stubborn to BoomTown–a kind of taking-my-marbles-and-going-home attitude–especially given Yahoo still has one of the most highly trafficked sites on the Web and some of its best-known products and services, as well as being the No. 2 player in search.

And Ballmer might well be bluffing, of course. After all, a bargain is a bargain.

Nonetheless, it underscores the reality that Yahoo is probably truly on its own now and must sink or swim on the initiatives and leadership of CEO Jerry Yang and President Sue Decker.

As I have written repeatedly, the pair has increasingly less time to act and must show perceptible improvements in results.

As at most Web companies, most analysts agree the third quarter is probably not a disaster for Yahoo. Instead, all eyes are on the fourth quarter, which is going to be most definitely impacted by the current economic slowdown.

Yahoo has recently hired a former Microsoft exec–Joanne Bradford–to lead its advertising efforts in the key U.S. market. And, while she is well regarded on Madison Avenue, Bradford has her work cut out of her, especially in the hard-hit online display advertising business.

Yahoo also is on pins and needles to see if the Justice Department will try to put the kibosh on its search ad outsourcing deal with Google (GOOG).

Yahoo is hoping to get a big boost in revenue from the partnership, which has many critics. In the current economic environment, the government might be loath to slap down any sign of financial activity, but the uncertainty is not good for Yahoo.

Yahoo’s declining stock price is also sure to impact its talks with Time Warner (TWX) over acquiring its AOL unit. Yahoo does not want to pay anywhere near the $10 billion that the media giant had previously floated as its price for the once-mighty, now-beleaguered AOL.

But Yahoo’s declining market value means it is likely to be able to pony up less and less.

With continuing rumors of layoffs, which I posted about two weeks ago, doing more with less is going to be business as usual at Yahoo, it seems.

And, in fact, heads of various business units at Yahoo have been given marching orders to cut costs, which are quite substantial.

“We might not make all the cuts requested,” said one exec. “But it is going to hurt.”

The departure of Dave Karnstedt, who took over last year when longtime Yahoo ad sales exec Wenda Millard left Yahoo in the first of many controversial partings, has been long rumored internally.

(In fact, I have driven one of Yahoo’s PR people crazy in recent months trying to verify a persistent tip I had been getting that he was headed out the door.)

Karnstedt will be joining Redpoint Ventures, a Silicon Valley venture firm, as an executive-in-residence.

And, in a rejiggering and addition of duties at Yahoo (YHOO), Karnstedt’s job and more is going to Joanne Bradford (pictured here), a longtime and well-known Microsoft (MSFT) exec who decamped from the software giant to helm national ad sales at trendy ad services start-up Spot Runner just six months ago.

There have been rumors swirling that Bradford was unhappy at the smaller company after working at the giant Microsoft.

She was EVP of National Marketing Services, focused on national advertisers, for Spot Runner, joining in a high-profile move in March. Previous to Spot Runner, Bradford was a VP and chief media officer of MSN Media Network, and had worked at BusinessWeek before that.

In any case, the move will be seen as a blow to Spot Runner, which recently did some unusual layoffs, despite receiving a large slug of cash from investors.

(Here is a post and video I did on a recent trip to Spot Runner, including an interview with its CEO Nick Grouf.)

“I am going back to my entrepreneurial, build-something roots,” Bradford told me at the time she joined Spot Runner. “There is such inefficiency in buying and selling of advertising and someone has to solve that, both for big companies and small ones.”

Well, welcome to Yahoo, Joanne, which could use a little efficiency in its buying and selling of ad sales!

Seriously, Bradford will now will take over as SVP of U.S. revenue and market development at Yahoo at a very dicey time.

Besides facing a withering U.S. economy, a weakened stock price after the takeover attempt by Microsoft and ensuing mess related to it, it was revealed that the Justice Department might block the deal Yahoo recently struck to outsource some of its ad sales to Google (GOOG).

Yahoo said that in this newly created role Bradford will oversee sales, market development for advertisers, small business and HotJobs. She will report to Hilary Schneider, EVP of Yahoo’s U.S unit.

Karnstedt, whom I interviewed when he first took over ad sales a little more than a year ago, is leaving to pursue other opportunities.

In Silicon Valley, that means the inevitable stop at a VC firm. Hence, Redpoint!

Interestingly, he joins former Ask.com head Jim Lanzone at Redpoint, while former Yahoo execs Jeff Weiner (Accel Partners and Benchmark Capital) and David Goldberg (Benchmark) also landed cushy EIR gigs after leaving Yahoo.

Karnstedt had been SVP of U.S. sales at Yahoo and had apparently resigned from the company earlier this summer (thanks for not confirming that when I asked so many times, Yahoo!)

With Yahoo seven years, he was charged with the difficult task of integrating Yahoo’s search, display, Blue Lithium and Right Media sales teams.

And while Karnstedt was well liked, many complained that the longtime online ad techie was not enough of a gregarious and schmoozy ad sales exec, with deep relationships on Madison Avenue, as Millard–and Bradford–surely are.

As I wrote in Aug. 2007, after an interview with him at Yahoo’s New York offices:

I made the point to Dave (he is the kind of guy you can call Dave, as you can see pictured here) that an ad guy needs to sell himself, but to no avail, so we press on in text. Nonetheless, let me set the visual scene:

Nicest guy you ever want to meet walks into nondescript room, wearing khaki-oxford-jacket Internet uniform 101. Declares Yahoo is going to kick some advertising butt in the nicest possible way. It is revealed this nice guy has been around the Web block for quite a while. Much chitter-chatter ensues. Cut to my clear-as-Fiji-water observation that nice guy, as nice as he is, has his work cut out for him.”

And now, more than ever in Yahoo’s key ad market, so does Bradford.

In its ongoing bid to prove there is a robust and sustainable advertising business in the social-networking space, widget-maker Slide opened a New York City office and hired a big-deal online ad exec.

Of course, because it has to be hip, the office is in the always trendy West Village, instead of uptown in Manhattan on Madison Avenue.

The new director of ad sales is Jason Bitensky, who comes to Slide from his post as director of national sales at AOL (TWX) Media Networks/Platform-A. Previous to that, he worked at Comcast (CMCSA).

Until this hire, Slide had only four salespeople, all located at its San Francisco HQ, who sold campaigns and sponsorships for its third-party apps that are hugely popular on sites like Facebook and MySpace (NWS).

Advertisers are most definitely intrigued, experimenting all over the place and interested in different ways of engaging with consumers.

Nonetheless, they are still using tiny “innovation” budgets to test the space and have still not unlocked the treasure chests of big bucks that go to television.

In fact, here is an interesting story on the ad issues apps-makers face in The Wall Street Journal tomorrow.

The not-so-much-money quote: “The push by application companies means more players are competing over what is a relatively small pie. In 2007, U.S. marketers spent $600 million advertising on social media, a sliver of the $18 billion spent on interactive advertising that year, according to Forrester Research. The number is forecast to spike to $6.9 billion by 2012.”

Still, said Max Levchin, CEO of Slide, about the move in a statement: “The success of campaigns on our popular products, such as SuperPoke!, Top Friends and FunWall, has attracted the attention of not only top brands, but also top talent like Jason.”

BoomTown shall agree to disagree with our favorite widget king about SuperPoke’s potential as an ad vehicle.

But it is entirely true that Slide and other apps-makers have to convince big brands that the social-networking phenomenon is here to stay and is effective, well beyond its viral popularity and huge valuations given to companies in the space.

Earlier this year, Slide–founded in 2005–got a $50 million round of funding that valued the company at $550 million.

And here’s a disturbing, but very funny, spoof video about where all this SuperPoking eventually ends up: