Although a relatively small part of the pages that Microsoft delivers, the company said the deal will amount to 860 million ads per day, a large stream of traffic by any Web standards.
The deal comes at a critical time for Digital Island, which posted huge losses last quarter and is in the middle of a cost-cutting process that includes layoffs and delayed construction of new facilities.
Digital Island and other hosting facilities have said that new business has been scarce in recent months, as even the biggest companies have slowed or stopped new spending on Internet projects. However, executives said last week that spending had picked up marginally at the end of last quarter. Microsoft's agreement may help brighten that glimmer of financial light.
"By outsourcing to Digital Island, we have the ability to scale when necessary very easily, and are saving a significant amount of money on infrastructure and maintenance costs," said MSN Senior Operations Manager David Walters.
No financial details on the deal were available. Digital Island will be delivering the ads for Hotmail.com, MSNBC.com, and the MSN Instant Messenger service, among other sites.
Digital Island also announced this week that it would use software from Novel, a Microsoft competitor, for some of its internal operations.