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Facebook Pulling Microsoft Banner Ads

Less than four years into what was billed as an exclusive advertising deal meant to run until 2011, social networking giant Facebook is terminating use of Microsoft banner ads on its sites, the companies said late last week.

Meanwhile, Microsoft (NASDAQ: MSFT) is playing down the loss of the advertising deal, while playing up an expansion of Facebook's use of the software firm's Bing search technologies inside and outside the U.S.

However, Facebook terminated the display-advertising deal, though it still gives Microsoft the exclusive right to post text ads on Facebook beyond 2011 to a date not named.

"We recently stopped displaying Microsoft's banner ads in some international markets. After additional talks with Microsoft, we have agreed to stop running all banner ads," a Facebook spokesperson told InternetNews.com in an e-mailed statement.

Not surprisingly, in the revamped deal, Microsoft is spinning the benefits of the extended search agreement, not emphasizing the advertising loss.

"Given the kinds of advertisements that make sense within a product as unique as Facebook, it just made more sense for them to take the lead on this part of their advertising strategy," Jon Tinter, general manager of Bing, said in a post on the Bing Community blog Friday.

"Bing will continue to exclusively power the Web search results on Facebook. As part of this expanded cooperation in search, our two companies will soon provide Facebook users with a more complete search experience by providing full access to great Bing features beyond a set of links, including richer answers combined with tools that help customers make faster, smarter decisions," Tinter added.

The relationship between the two firms began in August 2006, when the social networking site -- which then had a whopping 9 million members -- signed up to let Microsoft provide exclusive advertising.

Fourteen months later, Microsoft paid $240 million for a 1.6 percent stake in the social network. By that time, Facebook had some 50 million members and that number was growing at 200,000 per day.

Scroll forward to today -- Facebook now has more than 400 million members. Small wonder why the little social networking site that could would want more control of its own destiny. (Facebook began with three Harvard students in a dorm room in 2004.)

"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," the Facebook spokesperson said. "Facebook ads can also be targeted to people based on the information they provide [and] this combination of targeting and social relevance is the primary driver behind the shift in strategy."

Stuart J. Johnston is a contributing writer at InternetNews.com, the news service of Internet.com, the network for technology professionals.