Piczo has 25m registered users globally, typically aged between 13 and 16 years old, making it a purposeful location for advertisers wanting to reach the teen demographic.
Chris Seth, managing director at Piczo, said: "This deal brings together two market leaders. We're excited to be working with the most professional and successful sales team in the business."
Chris Ward, commercial director of Microsoft Digital Advertising Solutions, said it chose Piczo because of its success in social networking, in terms of both reach and engagement.
He said: "This is the first deal of its kind in the UK for each of us and reflects the importance of providing advertisers with technology innovation and the right communication channels to enable it to deliver relevant and engaging content to specific consumer audiences."
Ward added that this partnership was part of a long-term strategy to broaden Microsoft Digital's overall offering to advertisers, and to provide them with access to key target audiences across multiple digital platforms.
Piczo enables teens to build their own personal online site to share ideas and experiences with friends. It was launched in 2004 and has grown to 12m visitors a month.