Microsoft plans to implement its Live Search into the social networking site in autumn this year.

Satya Nadella, Microsoft Senior Vice President of Search, Portal and Advertising Platform Group told financial analysts that the company has expanded on its previous ad agreement with Facebook.

"We will be providing an API to Facebook where they will create a rich search experience, including a Web search for the Facebook users. And that's something that they will launch in the fall, working with us, and it'll carry both our Web results as well as our paid search advertising,” said Nadella.

No surprise

Given Microsoft’s $240 million investment in Facebook in October, 2007, the deal did not come as a surprise. Microsoft is currently the exclusive seller and manager of all Facebook’s display ads – a deal first announced in 2006. However, the new agreement means that it will now provide search and paid listings for the world’s most popular social networking site.

The news comes at a difficult time for Microsoft. The company is still under pressure to make some headway into the search market, which took a step back with the failed bid of Yahoo. Microsoft is currently a distant third in the search market. Google continues to dominate with around 500 billion searches world wide made through its search engine.

Facebook the home of search?

Although the deal will undoubtedly mean more traffic for Microsoft, questions remain as to whether social networks are the right platform for search.

“Social networking sites are not great for click through on advertising content. No one goes to MySpace to find a cheap flight to New York or to buy a new TV,” said Gary Goodman, managing director of online media trading platform, MediaEquals.

“No doubt that integrating your social networking contacts and updates on your home page makes a great deal of sense. However, this would be alongside your Gmail or hotmail account, weather, news, etc and social networking sites are not currently able to take this breadth of content. Facebook needs to provide a better service than iGoogle and it is hard to see how they will deliver this,” he said.

Social search networks

Although it will be difficult for Facebook to improve on the straight search experience of Google (as Cuil found out recently), Goodman believes that they could offer a different type of search which utilises the networks of its members.

“With the right spin on personalising your search, Facebook search could innovate how we search for things. For instance, users could link in to what friends may be searching for, getting more direct feedback on whether search results were appropriate. Social search sites need critical mass usage to be useful and the ones currently available do not have this yet. Maybe Facebook and Microsoft can deliver on this,” continued Goodman.

Jerry worried

If Microsoft can make the agreement a success, Google will finally have a real threat to its dominance in the search market. Certainly, Yahoo’s Jerry Yang should be looking over his shoulder, according to Lyndsay Menzies, Managing Director of search marketing company, bigmouthmedia UK.

"What's important about the deal is that if they can make it work, Microsoft will finally have secured MSN's first significant search partner. That's hardly going to have a seismic effect on the sector, but it is a vital step in their campaign to catch up on Google,” said Menzies.

"In many search campaigns the best bit about MSN Live Search is that it offers good conversion rates. The challenge has always been whether they can add a greater volume of searches while still doing so. Yahoo is the one player that has everything to lose if all goes to plan. Nobody in the industry would be surprised if MSN Search was widely accepted as the second placed search player by the end of the year," she continued.