Digg buries Microsoft ad contract

Social-news site Digg has ended its advertising partnership with Microsoft more than a year before the deal was set to expire. Instead of relying on Microsoft as its exclusive ad partner, Digg will now primarily use the internal sales force it recently began building; Microsoft will handle remnant inventory.

"Starting July 1, Microsoft will sell network inventory for Digg through the Microsoft Media Network, which it has been doing successfully for the last year and a half," a statement from Microsoft read. "Digg has created its own internal sales executive team, and we respect their decision to sell their owned-and-operated site inventory directly to help further accelerate their growth as a company."

Digg's contract with Microsoft, intended to be a three-year deal, started in mid-2007, when the company chose it over Google. At the time, founder Kevin Rose applauded the decision because it would let Digg's employees focus on feature development while leaving ad sales to a more experienced team.

The revised contract is a blow to Microsoft, which touted the Digg deal as a big victory at its debut. But it also is yet another signal that advertising on the Web is changing significantly.

According to a ClickZ report, Digg's internal sales team will focus on "custom, non-IAB (Internet Advertising Bureau) inventory combined with standardized banner ads." This strategic decision--to move away from a reliance on the traditional IAB display units that have defined digital advertising for years--comes at a time when the best way to advertise on a social-media site is a matter of debate and uncertainty.

Social network Facebook also has a display ad contract with Microsoft (in addition to a $240 million investment) but has been putting more emphasis on the experimental "Engagement Ads" product that it packages and markets in-house. The News Corp.-owned MySpace, meanwhile, relies more heavily on traditional display ads.

By most accounts, MySpace is ahead of Facebook in the monetization game. It has a bigger foothold in the United States, where ad dollars are easier to come by than overseas, and it's willing to make advertising significantly more pervasive with full-page "wrap" campaigns--not to mention the fact that it has News Corp.'s media connections.

But with Digg choosing to go the Facebook route (sort of), especially given the bleak advertising climate, this could be a sign that more players in the tech industry have started to regard the next generation of digital ads as a more profitable route.

"It's not unusual for someone in the social media space to have a lot of custom units, because they're forging new territory," said Debra Williamson, a senior analyst at eMarketer. "A lot of people say that by the time the IAB comes out with a standard, the ad format is, (while) not necessarily passe, certainly not the cutting edge."

Williamson noted that not only is Digg changing its ad focus, it's looking to make new hires to expand its team. "That does put a stake in the ground, and it does say that a company like Digg is serious about looking beyond the banner, so as to speak, that they're really looking to develop new ways of advertising and that they're looking to bring on new people to help them do that."

Whether or not Madison Avenue will agree is a different story.

This post was expanded at 1:15 p.m. PT.