Microsoft purchased a $240 million stake in Facebook in 2007, and they signed an agreement Microsoft would manage Facebook’s display ad sales outside of the U.S. That sewed the seeds of Microsoft using Facebook’s social graph data into Bing search results, which could have benefits from both parties.

“To understand what this partnership means for search, let’s quickly review the history of search engines. They began with directories that helped people find sites (the original Yahoo model) and then evolved to an on-site optimization model (think of Alta Vista),” writes Dave Williams. “Today, Google’s algorithms and theories of Link Authority and Site Authority are the driving force behind search. Social graph optimization — using the influence of friends and Facebook likes to tailor search results — is the next evolution of search, and it represents the biggest innovation since Google arrived.”

“This allows friends on Facebook to influence the results of Bing, making things more relevant to users, especially locally. Once Microsoft rolls out its socialized mobile search options, it may change the way people think about local results.”

“The Facebook and Microsoft partnership essentially forms the biggest threat to Google that we’ve ever seen in the search space,” adds Williams. “Ironic that it’s coming together just as the Federal Trade Commission plans to investigate the search giant for alleged anti-competitive practices. Google has held roughly two thirds of the search market for the past few years, but it can’t compete with Facebook when it comes to social media. The search giant recently rolled out +1, a feature that promotes items in the search results according to how many consumers click the ‘+1’ icon.”

“Still, Google doesn’t know who is making those recommendations while Microsoft will. The Microsoft/Facebook partnership could help Microsoft gain Bing converts from Facebook and open the door to more relevant ads on the social network.”

“Search intent is the best way to target advertising online,” notes Williams. “That’s why paid search brings in more revenue than any other online ad channel. Were Facebook to gain access to Microsoft’s data, they’d have a backdoor to intent-level data, giving them access to what consumers like and are looking for online. With that, Facebook would instantly compete with Google at the top and the bottom of the sales funnel online. That positioning would come in handy, especially when you consider that Facebook is already on pace to bring in more display revenue than Google this year.”