Digging for Dollars

Digg lets members discover and share content from across the Web. The content is ranked according to the number of community votes, or "diggs" the story, podcast, video, or other content receives. Microsoft will serve up both display and contextual advertising, and work with Digg on future technology and advertising initiatives.

Microsoft is gaining online advertising momentum in the Web 2.0 world, having struck a similar deal with Facebook last year. There is some cachet and prestige to having these next-generation properties in an advertising portfolio, according to Greg Sterling, principal analyst at Sterling Market Intelligence.

"Microsoft doesn't have the kind of network or traffic Google has, so the company is trying to build it out by bidding aggressively for business," Sterling said. "But this is a bigger deal than advertising. I'm sure Microsoft is offering Digg some technological help to develop its site."

Why Ditch Google?

Digg founder Kevin Rose took a dig at Google in his Wednesday blog post, noting that the Microsoft alliance gives his company a larger organization with a more scalable technology platform to keep pace with Digg's growth.

"As the Digg audience continues to grow and diversify," Digg CEO Jay Adelson wrote in a statement, "we believe that this initiative with Microsoft, and the resources that it provides, will enable us to focus less on developing an advertising infrastructure and more on developing new and innovative features for the site."

At the end of the day, Sterling said, losing the Digg deal won't hurt Google or its advertisers, but it is a clear win for Microsoft and its advertisers. Sterling also said that the alliance might set up a potential acquisition in the future.

"Digg has venture capital investors and is obviously being positioned ultimately to be acquired," he noted. "Bringing Microsoft in as a close partner creates an opportunity for Microsoft to acquire the property at some point in the future."