• by Gavin O'Malley  @mp_gavin, February 8, 2010

Following a renegotiation of an existing ad placement partnership, Facebook will no longer run Microsoft display ads on its popular social network. The two companies, however, have expanded their search partnership, which is obviously good news for Microsoft's search engine Bing.

The development comes over three years after Microsoft announced a deal to sell ads on Facebook, and two years since it shelled out $240 million for a 1.6% stake in the top social network.

Last month, Facebook stopped using Microsoft to sell graphical banner ads in some international markets. Robin Domeniconi, vice president of U.S. ad sales at Microsoft, later told members of the press that Facebook could soon drop its ads in the U.S., too.

Meanwhile, an existing agreement to sell search ads for Facebook will now extend into international markets, along with new features, Jon Tinter, general manager of Microsoft's Bing search engine, said in a blog post on Friday.

"As part of this expanded cooperation in search, our two companies will soon provide Facebook users with a more complete search experience by providing full access to great Bing features beyond a set of links, including richer answers combined with tools that help customers make faster, smarter decisions," Tinter said.

However, losing its grip on display ads across Facebook was inevitable, Tinter seemed to suggest.

"Given the kinds of advertisements that make sense within a product as unique as Facebook, it just made more sense for them to take the lead on this part of their advertising strategy," Tinter said in the blog post.

Microsoft's online services division just reported a 5% year-over-year decline -- despite the fact that Bing's market share has been up for 7 straight months -- while online ad revenue was down 2%.