The agreement with Facebook builds on an existing deal - Microsoft currently sells and manages display advertisements on Facebook - which the companies struck in 2006 and later expanded globally.
The financial details of the Microsoft/Facebook deal are not known, but a similar deal between Google and MySpace sees the search giant guaranteeing around $900m (£453m) as part of a three-year deal to serve search and display ads on the social networking site.
For Facebook, the new deal fills a significant gap in its offering. At present, those looking to conduct searches have to leave the social network. Following the deal Facebook will offer a new search toolbar, thereby increasing the average length of time users will stay on the site.
In a meeting with US analysts yesterday, (24 July), Microsoft chief executive Steve Ballmer said the company would maintain its online ambitions, despite the fact that its online operations remain loss-making and that it has failed in its pursuit of Yahoo.
"The amount of economic value we have the opportunity to create by pursuing this world in which everything goes digital is at least 40, 50 or 60% more than our economic value today," Ballmer said.
Last October, Microsoft invested $240m (£121m) for a 5% stake in Facebook.
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