Under the agreement, Microsoft will provide Facebook with an application programming interface that will add Windows Live Search directly into the Facebook environment. Facebook users' Web queries will produce search results and paid search ads generated by Microsoft's search engine.
"We're excited about even using that as an opportunity to further extend the Live Search reach," said Microsoft senior VP Satya Nadella, who spoke Thursday at Microsoft's annual meeting with investment analysts at its Redmond, Wash., headquarters.
Financial details of the arrangement were not released. Nadella said the service would launch in the fall.
Microsoft needs to find new ways to grow its search business in the wake of its failed attempt to acquire Yahoo -- the No. 2 provider of paid search services behind Google. Google controls about 62% of all search traffic in the United States, followed by Yahoo -- which owns about 21% of the market. Microsoft is in third place with a 9.2% share, according to market watcher ComScore.
Facebook, which claims more than 90 million active users, could help Microsoft increase its share of the market considerably.
On Thursday, Microsoft CEO Steve Ballmer said an acquisition of Yahoo would have simply been a "tactic" and "not a strategy" to help the company grow its search business. Indeed, beyond the Facebook deal, Microsoft has made other moves recently to build out its search offerings.
Earlier this month, Microsoft acquired Powerset for a reported $100 million. The company specializes in an esoteric form of Web querying called semantic search. The technique uses a variety of linguistic tools to interpret the meaning of search phrases to produce the most accurate results. The method has been in development for more than 10 years.
In January, Microsoft reached an agreement to acquire enterprise search company Fast Search & Transfer for $1.2 billion.