Microsoft to provide advertising for Digg

A screenshot of Digg.com, taken on July 25, 2007. Microsoft Corp said on Wednesday it reached an agreement to be the exclusive provider of display and contextual advertising on Digg.com, a popular Web site that lets readers recommend online articles to others.

SEATTLE (Reuters) - Microsoft Corp. said on Wednesday it reached an agreement to be the exclusive provider of display and contextual advertising on Digg.com, a Web site that lets readers recommend articles to others.

Microsoft replaces Google Inc. as Digg's provider of display ads, boosting the world's largest software maker's efforts to gain a stronger footing in the growing online advertising market.

The two companies said the three-year agreement would go into effect in the coming weeks. Financial terms were not disclosed.

Digg, which said it has more than 17 million visitors a month, challenges the long-held journalistic assumption that editors know best what people want to read and allows readers to "digg," or vote for a story to push up its rankings.

Digg Chief Executive Jay Adelson said his company also considered partnerships with Google and Yahoo Inc, but chose Microsoft because of the level of customization the software maker offered with its advertising platform.

It also allows Digg, the most-visited Web site for technology news, according to online audience measurement firm Hitwise Inc, to focus on improving its site without having to create its own sales to sell banner advertising.

"This opens a whole category of (advertiser) inventory that wasn't available to Digg," said Forrester Research analyst Charlene Li.

After relinquishing an early advantage in the lucrative paid search advertising market, Microsoft is trying to catch up to Web rivals by clinching deals to broker display advertising with some of the hottest names in the "Web 2.0" phenomenon.

Web 2.0 is a catch-phrase for the new generation of Internet services that run on interactive software and typically rely on content generated by users to attract more visitors to sites.

Microsoft has a similar advertising agreement with another popular Web 2.0 property, social-networking site Facebook.com.

"You'll continue to see us be aggressive in this field," said Steve Berkowitz, the head of Microsoft's online services group. "There's so much for us to learn about these users and the direction these companies are heading."

The two companies said they would also work together on future technology and advertising initiatives. Microsoft added it would let Digg and Facebook play a key role in what directions to take its advertising platform.

Digg's Adelson said he called Facebook to ask about its relationship with Microsoft and got a positive recommendation, providing the final impetus to do the deal.

Microsoft, which posted a 33 percent increase in online advertising in its most recent quarter, agreed earlier this year to buy Web advertising firm aQuantive Inc. for $6 billion. It is Microsoft's largest acquisition ever.

Microsoft shares fell 9 cents to $30.71 in Wednesday Nasdaq trade.

(Additional reporting by Eric Auchard in San Francisco)