Microsoft and Facebook strike new ad deal

Facebook has struck a new deal with software leader Microsoft, which will see the social networking giant take back control of its display ads and replace the near-exclusive deal between the two companies.

But Microsoft will continue to sell text-based search advertisements on the site, and will integrate its Bing search engine into Facebook.

Facebook said the change was due to its belief it could provide better value for its nearly 400 million users. A statement said its display ads, which target users based on information included in their personal profiles, fit into the Facebook culture better than Microsoft banner ads.

“Ad formats that feature social actions perform better and provide a better user experience since they are more consistent with the look and feel of Facebook,” the company said. “This combination of targeting and social relevance is the primary driver behind the shift in strategy.”

The network had already stopped showing Microsoft banner ads earlier last month internationally, but further talks resulted in a deal that will see all banner ads taken down over the next month.

The original deal between the two companies was designed to run until 2011, but the new agreement will see the ads stop immediately. Instead, Bing will play a more prominent role in powering the Facebook search function.

“Bing will continue to exclusively power the web search results on Facebook. This change will also enable Microsoft to continue its focus on driving strong performing campaigns across our own social media and communications tools, including Windows Live Messenger and Hotmail, and via rich content environments across MSN and Xbox Live.”

The web searches within Facebook will provide other content besides links, but so far this content has not been specified. By powering its search within Facebook, Microsoft will attempt to take on market leader Google by banking on the network’s massive popularity.

Microsoft is a shareholder in Facebook, holding a 1.6% stake after paying $US240 million in 2007.

However, no financial details of the arrangement have been released. Facebook has not confirmed whether any revenue-sharing has been arranged, or whether fees will be paid.

But some analysts have pointed out the deal will almost certainly include a financial component, with Facebook recently putting more emphasis on its internal figures. It said last year the site was “cashflow positive”, attracting investors’ attention to a possible future IPO.