The agreement to sell and display banner ads and sponsored links on the popular social-networking site connects a second large Internet company to Microsoft's advertising network and platform, called AdCenter. The Redmond, Wash., company has also signed A9.com, Amazon.com's search engine.
Facebook is a solid win because it delivers to advertisers a prized demographic, college and high school students. But Microsoft will still need to show that newly developed AdCenter can deliver a solid return to advertisers and revenue to Facebook. Other than saying the agreement is for three years, Facebook declined to release financial details.
"Right now, nobody knows whether this is great stuff or not," Joe Wilcox, analyst for Jupiter Research, said of AdCenter. "Google and Yahoo, on the other hand, are known quantities."
Melanie Deitch, director of marketing for Palo Alto, Calif.-based Facebook, said the fact that Microsoft is building its ad platform from the ground up, gave it the flexibility to adapt to the site, rather than the other way around. In addition, Microsoft was prepared to work quickly. The two companies reached an agreement in about a week.
"It became clear early on in the conversation that this made sense for both companies," Deitch said. "It was a really good fit."
The two companies, however, still have some work to do. While Facebook currently sells banner ads, sponsored links would be new. Such advertising is usually text based and is delivered with results from search queries. Deitch said the companies have yet to "hammer out" the details.
The devil, according to Wilcox, will be in the details, and whether Microsoft can deliver to advertisers. Compared to Google and Yahoo, which have both built up multi-billion-dollar businesses around online advertising, Microsoft is new to the market.
"Microsoft is the untested one here," Wilcox said.
AdCenter isn't expected to be profitable while Microsoft builds out the infrastructure and markets the service, Wilcox said. So far, however, "ads sales are sluggish."
"It's way too soon to tell," Wilcox said of the chances of AdCenter's success. "It's more than just getting customers."
In terms of recent customer wins, Microsoft trails Google. This month, the search engine said it agreed to pay News Corp. $900 million over three years to provide search and distribute advertising for MySpace.com, the most popular social networking site with more than 51 million unique visitors in May, according to ComScore Networks. Facebook was No. 3 behind Classmates.com with more than 14 million visitors.
Besides MySpace, Google dipped into its deep pockets in December and paid $1 billion for a stake in AOL, and to form an online advertising partnership with the portal.
Microsoft launched AdCenter in the United States in May, following months of testing overseas. The online service lets advertisers buy display and search advertising across Microsoft's Web properties MSN and Windows Live.