Microsoft lands Facebook ad deal
Microsoft failed to sign MySpace to an advertising deal, so the software giant went out and landed Facebook, the second-largest social networking site. — Late Tuesday evening, Microsoft announced that Facebook had agreed to allow the software company …
Context & Ripple Effects
This deal is the consolation prize in a two-horse race: per the confirmed reporting, Microsoft first pursued MySpace, failed to sign it, and turned instead to Facebook — the site CNET describes as the second-largest social network. Microsoft's own syndicated announcement frames the arrangement as advertising 'syndication,' while same-day New York Times reporting details the shape of it: Microsoft will provide and sell advertising for Facebook over the next three years, with terms undisclosed.
The significance is positioning rather than revenue — nobody has disclosed what this is worth. In August 2006, social-networking traffic is exploding but its ad monetization is immature, and the major software platforms are racing to control the advertiser relationships that monetize it. Microsoft arriving at Facebook only after striking out with MySpace tells you who its first choice was.
First-order effects
- Microsoft gains a three-year foothold selling ads against fast-growing social-networking inventory it could not secure via MySpace, extending its ad business beyond its own properties.
- Facebook gets a seasoned national ad sales operation overnight, avoiding the cost and lag of building its own sales force while its audience scales.
Second-order effects
- MySpace — still without a comparable platform partner after declining Microsoft's approach — faces pressure to line up similar ad distribution or invest in its own targeting and sales capability to keep pace.
- Competing ad platforms must now bid for the remaining large social networks' inventory, raising the strategic price of the few properties left unsigned.
Third-order effects
- If the pattern holds, social networks increasingly route monetization through a small set of large ad-selling platforms, shifting leverage from site owners toward whoever owns the advertiser relationships.
- Distribution partnerships of this kind tend to precede deeper commercial ties between platforms and the networks they serve, though whether Microsoft-Facebook moves beyond advertising is unresolved as of this deal.
The trend: Social networks are outsourcing ad sales to large software platforms, making exclusive platform partnerships the key currency in monetizing user-generated Web traffic.