Microsoft to Provide and Sell Ads on Facebook, the Web Site
Microsoft said yesterday that it would provide advertising for Facebook, a Web site aimed primarily at college students, over the next three years. — The two did not disclose the terms of the deal, in which Microsoft …
Context & Ripple Effects
Microsoft came to this deal by elimination: per the confirmed relationships, it had tried and failed to sign MySpace to an advertising agreement before turning to Facebook, the college-focused site whose inventory it will now provide and sell for three years under undisclosed terms. The pickup was broad for a deal with no financials attached — CNET covered the Facebook ad win the same day, and Microsoft itself promoted the syndication arrangement.
The more pointed reaction came from Digital Micro-Markets, which framed the story as a question rather than a win: why can't Facebook sell its own ads? That skepticism matters because the deal positions Facebook's fast-growing student audience as outsourced monetization while handing Microsoft, fresh off the MySpace rejection, the marquee social-network account its ad business lacked.
First-order effects
- Facebook hands off ad provision and sales for at least three years, converting its unsold student-audience inventory into revenue without building its own sales force.
- Microsoft, having lost the MySpace bid, secures the largest available US social network as an anchor client for its advertising platform.
Second-order effects
- Competing ad platforms are pushed toward whatever large social networks remain unsigned, since exclusive selling rights to one site forecloses that inventory to rivals.
- If the arrangement proves lucrative, other venture-backed social sites face investor pressure to outsource sales the same way rather than staff their own.
Third-order effects
- Selling rights to social-network inventory become contested strategic assets among the major ad platforms, foreshadowing equity stakes and bidding contests over the networks themselves if distribution keeps proving more valuable than content.
- A two-tier structure emerges in web advertising: a handful of platforms that own advertiser relationships, and publishers — even very large ones — that rent them.
The trend: Web advertising is consolidating around a few large ad sellers racing to lock up exclusive rights to social-network audiences, a race Microsoft just rejoined via Facebook.