Facebook Selects Microsoft to Run Ads

Social networking service Facebook, largely aimed at students in the United States, has inked a deal with Microsoft to turn over control of the site's advertising exclusively to the Redmond company. The news is the first major deal for Microsoft's new adCenter platform.

adCenter works much like Google's AdWords program: advertisers bid on keywords, and the service targets ads to related pages. Unlike with traditional graphical banners, advertisers only pay when they receive a click, although Google is now serving some impression-based ad campaigns in addition to text links.

Microsoft is coming late to the game, however, and the company is attempting to catch up to established rivals like Google and fellow search engine Yahoo. Initial versions of adCenter rolled out in the U.S. in May, with testing ongoing internationally.

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Although it foresees ad sales dropping initially, Microsoft asserts that adCenter is the key to its future success. Most of Google's revenue comes from its AdWords programs, and Yahoo has seen similar success.

Partnering with Facebook gives Microsoft instant access to millions of eyeballs and will be the first true test of adCenter.

Microsoft will handle all banner advertising and sponsored links on Facebook. The two companies also pledged to work together on future technology and advertising initiatives. Facebook will also provide aggregate user behavior to Microsoft, which it says will allow adCenter to better tailor ad placements.

"We believe that the combination of Microsoft and Facebook strengths will be incredibly attractive to advertisers as they forge more meaningful connections with one of the largest, most engaged audiences on the Internet," said Steve Berkowitz, senior vice president of the Online Services Group at Microsoft. "The consumer assets brought to bear by this relationship will be very hard to match."

The announcement comes after less than a week of negotiations. Ads from Microsoft will begin to appear on Facebook in the fall.

Google this month signed a major deal of its own in the social networking space, agreeing to pay at least $900 million in shared revenue to become the exclusive search provider for MySpace.com and other Fox Web sites. Google will also become the exclusive text-based ad provider on Fox Web sites.

"This has got to hurt at Yahoo and Microsoft," JupiterResearch analyst David Card remarked on the Google deal. "Especially Microsoft, who still hasn't established its marketplace."

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