Following a deal last August in which Microsoft agreed to handle all ad sales for popular social networking site Facebook, the Redmond company has signed a similar agreement with social news site Digg. Microsoft is working hard to establish itself in the ad industry, but faces stiff competition from Google.

Few details are known at this point, although Digg creator Kevin Rose says it's "similar to the one Facebook signed with Microsoft last year." This means that Digg will turn over control the site's advertising exclusively to Microsoft and its adCenter platform.

adCenter works much like Google's AdWords program: advertisers bid on keywords, and the service targets ads to related pages. Unlike with traditional graphical banners, advertisers only pay when they receive a click, although Google is now serving some impression-based ad campaigns in addition to text links.

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.

According to Microsoft, the deal will last for three years.

"This move gives us an advertising partner with a larger organization and a more scalable technology platform to keep pace with Digg’s growth. Best of all, it lets the Digg team completely focus on new feature development," explained Rose.

Google last August signed a major deal of its own in the social networking space, paying at least $900 million in shared revenue to become the exclusive search provider for MySpace.com and other Fox Web sites. Google also became the exclusive text-based ad provider on Fox Web sites.