Facebook and Microsoft Cancel Display Ad Relationship

Microsoft will no longer represent Facebook's display ad inventory, the companies said today. The "mutual" decision ends a three-year exclusive ad relationship that extends back to 2006.

A post on Microsoft's Bing blog characterized the move as a natural part of Facebook's evolution. Facebook will take responsibility for selling display ads on its own sites in the U.S., starting on February 28, according to Microsoft.

"Given the kinds of advertisements that make sense within a product as unique as Facebook, it just made more sense for them to take the lead on this part of their advertising strategy," said the post, which was written by Jon Tinter, Bing's general manager.

In a statement, Facebook said it decided to stop serving all Microsoft ads in part because Facebook's own ads can be more accurately targeted and better integrated with its site. "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," it said.

Microsoft will continue to sell search ad placements on Facebook.

The end of their display ad deal was buried in a post about an expanded search relationship between Microsoft and Facebook. Under that new agreement, Facebook will display richer search results from Bing and will provide Bing results to its users around the globe. The expansion includes the integration of Bing's visual search and other features.

However it's not clear what role search plays in consumer behavior on social networking sites. According to ComScore, MySpace was home to 439 million U.S. search queries in December 2009, fewer than Bing, Craigslist, and AOL. Despite its larger audience, Facebook's search volume was even lower, at 354 million queries. What's more, Myspace's year-over-year search query volume declined 5 percent in December, and Facebook's volume dropped 1 percent.

Additionally, News Corp.'s disappointing attempt to integrate Google search results and ads with MySpace has led many to conclude social networking sites do not generate a great deal of search activity.

Microsoft has been the exclusive third party representative of Facebook ad inventory in the U.S. since 2006. One year later, they expanded the deal to include global ad inventory.

The cancellation may be seen as a blow to Microsoft's business selling ads on branded publisher sites. Over the years, it has had such deals with Facebook, Digg, Viacom, CNBC, and Dow Jones, among others, but several of them have not lasted. Digg ended its relationship with Microsoft last April, and brought all ad sales in house. Edgar Online also no longer relies on Microsoft for ad sales, according to a Microsoft spokesperson.

Correction: An earlier version stated Microsoft no longer works with Viacom on display ad sales. That's not the case.