Digg and Microsoft today announced the creation of a new advertising partnership between the two. While no price was confirmed, the deal is to begin in August and last for three years, allowing Microsoft to serve both text and graphical ads on the well known community-based popularity website.

Before partnering with Microsoft, Digg utilized Google for text ads while working with the smaller Federated Media for more selective high-yield Cost Per Mille (CPM) ad sales. While Federated Media will collaborate with Digg and new partner Microsoft on integrated sponsorships and custom programs, Google Advertising has been shown the door. As a premium Adsense publisher and one of the web’s hottest Web 2.0 properties, Digg’s departure will hurt Google’s image much more than its wallet. In its partnership with Digg, Google found it difficult to generate revenue from ads on the site, but as a part of its overall advertising service, Digg was hardly a blip on the radar.

It seems likely that Microsoft will run into the same problems that Google did on Digg. Digg’s audience doesn’t reflect the average web demographic. According to Federated Media, Digg’s audience is predominantly composed of business and IT influencers working in technology, 91% male, and 88% between 18 and 39. This group has proven highly resistant to Cost-per-click (CPC) advertising, possibly due to being tech-savvy. More on this from Digital Inspiration:

“I was listening to Tim Ferris of The Four Hour Week here and he said that his blog has been on the Digg home page at least half a dozen times in less than a month. Whenever that would happen, he would see an avalanche of visitors coming to his website but the conversion ratio was negligible… On the other hand, if that same post was linked/recommended by some influential blogger like Robert Scoble, Tim felt much better as far as the conversion ratio was concerned.”

Also, Digg posts usually have a very high organic search ranking, often appearing higher than the original subject matter in major search engine queries. Unfortunately, this doesn’t translate into high conversion rates because people go to Digg and then go to the article linked from the Digg post – all without looking at the advertisements on Digg. This all adds up to a probably tough initial experience for Digg’s new partner.

However, Microsoft may be expecting to take a loss on Digg. According to Nate Mook at BetaNews:

“Microsoft likely offered Digg a minimum revenue guarantee as it had reportedly done for Facebook. This means the company will be losing money in the near-term, but such deals are crucial if Microsoft wants to establish itself in the marketplace. It needs high-profile sites and big visitor numbers to attract ad dollars away from Google, Yahoo and AOL.”

Digg, with its 17 million unique visitors a month and favorable status among the tech-savvy, certainly raises Microsoft’s profile with other sites looking for advertising alternatives. Microsoft has finally set its advertising base with the launch of adCenter (essentially the same as Google’s AdWords) and acquisition of advertising agency aQuantive – now it just needs some high profile clients. Digg is not a bad start, but it’s not going to let Microsoft catch up to Google’s market dominance any time soon. Looking at the numbers for advertising revenue in Q2 2007, Google made out with about $3.2 billion, Yahoo had nearly $1.5 billion, and Microsoft just reached about $500 million. It’s pretty clear that Digg represents an image boost and learning experience for Microsoft, and not much else.

While Microsoft’s advertising standing may be helped by its partnership with Digg, there is speculation that Digg’s users won’t take kindly to the switch. Even a casual Digg user can see that the topic of Microsoft is the Great Satan of posts. Lisa Barone at the Bruce Clay Inc. blog writes:

“It’s surprising to me that Digg would partner with Microsoft knowing that the community hates Redmond almost as much as they hate us search engine optimization folk. Kevin, what if the kids revolt again? If I were you I’d keep an eye on the comments starting to flow in at Digg where users don’t seem at all too happy about this. It’ll be interesting to see how the site is affected by the new deal. Heck, it was hard enough getting the community to accept Digg’s new Microsoft category. What are they going to do now that the evil MS is invading their space? Stay tuned.”

I really doubt that Microsoft taking over Digg’s advertising will lead to a mass exodus from the site, even amongst the tech-savvy. The real question is whether Microsoft will be able to capitalize on a rare victory in the online advertising arena, and how this will translate for Google, Yahoo!, and the industry as a whole.

This entry was posted on Thursday, July 26th, 2007 at 12:43 pm and is filed under Advertising: Distribution, Advertising: Online, Google: AdWords, Microsoft. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.