In an effort to catch the eyes and ears of more internet users, Microsoft has released an update to its MSN Messenger application, offering improved video and voice calls.

It has also launched a finished version of an online scrapbook service it has been testing, MSN Spaces, and rolled out new advertising opportunities.

The MSN updates are aimed at making the company's services more interactive, as it takes on challengers such as internet telephony startup Skype. Skype has seen steady growth for its free PC-to-PC voice service, leading it to roll out PC-to-mobile phone calls and messaging capabilities.

Microsoft wants to get one step ahead with the release of its new MSN Messenger 7.0 instant messaging (IM) application which offers free PC-to-PC video calls for users with a webcam, in addition to free voice calls.

The video call feature uses technology from webcam maker Logitech to synchronise audio and video streams. Users can watch a video in the Messenger window or get up close and personal in full-screen mode. Additionally, the company plans to incorporate a feature in coming months that will allow Messenger users to send messages to friends' mobile phones.

Messenger 7.0, which has been in beta since December, also includes the ability to perform a search during a chat session and share photos.

The company also officially launched its MSN Spaces service on Thursday, an online scrapbook that lets users post blogs, photo albums, music lists and other personalised information.

Introduced in beta form in December, MSN Spaces now offers more storage space – allowing users to post around 750 photos – and a variety of backgrounds and personalisation options. Over 4.5m people have already signed up for the free service, Microsoft said.

Both MSN Spaces and Messenger 7.0 have also been optimised for advertising, allowing marketers to tout brands in brief video commercials, text ads, links to websites and banner spaces, among other sponsorship options.

"We're trying to build an advertising experience into the product, but we don't want it to be obnoxious," said Phil Holden, director for communications services for MSN.

Joris Evers in San Francisco contributed to this report.