Blog Post

Facebook, Microsoft Scale Back Ad Relationship

A $240 million investment seemingly can bring only so much leverage. Two years after Microsoft (NSDQ: MSFT) bought a 1.6 percent stake in Facebook and more than three years after it announced a deal to sell advertising on the site, the two companies are scaling back their relationship. Microsoft executives tell BusinessWeek that the company is no longer selling display ads on Facebook in some international markets and may soon not be selling any display ads on the site in the U.S. either. Nothing, however, has changed in the U.S. yet.

The moves represent quite a big turnaround since the ad relationship between the two companies has only been growing in recent years; when Microsoft announced its investment in 2007, the company also said it would expand its ad deal with Facebook to include international versions of the site. Ten months later, Microsoft said it would also handle search ads on the social network.

But as Facebook has grown, so has the social network’s desire to do things on its own. The company now wants to sell more of its own ads, according to the BusinessWeek report. (Digg gave a similar reason when it dropped its exclusive ad deal with Microsoft last April).

Another indication of Facebook’s growing ambitions: Facebook plans to begin to build its own data centers, instead of leasing space, according to a report today from Data Center Knowledge.

Here’s Microsoft’s full statement: “Microsoft no longer represents Facebook’s display advertising in several global markets, however our contract for display advertising with Facebook in the U.S. remains unchanged at this time.”

A Facebook spokesman, meanwhile, tells us: “After talks with Microsoft, we have recently decided to stop running their banner ads on Facebook in some international markets.¬†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. Facebook ads can also be targeted to people based on the information they provide. This combination of targeting and social relevance is the primary driver behind the shift in strategy.”

The international changes were first reported by InsideFacebook last week.