Microsoft has ditched its ad exchange program and is outsourcing the job to startup AppNexus. The company will begin selling its non-premium display ads through the AppNexus exchange this month, migrating from the AdECN exchange it purchased in 2007.

Curiously, AppNexus was banned from Google (News - Alert) Ad Exchange in December. Google's exchange reportedly accounted for 50 percent or more of AppNexus' inventory at the time. Google claimed AppNexus had violated its policies, and it seemed the company had been left out in the cold.

AppNexus apparently had bigger plans. The company estimates it will be moving more than 10 billion ad impressions per month through its exchange at the onset. By contrast, Google's AdX is most likely moving more than one billion impressions per day.

The AppNexus platform enables Microsoft to sell its ad space through a "real-time" bidding exchange like Google. The bidding exchange enables buyers and sellers to set the price of a single ad impression in milliseconds, a huge benefit for buyers. AppNexus also proves a set of management capabilities for executing and optimizing both real-time and directly negotiated media buys. The real-time technology does have the potential to cut into publishers' pricing power, which has prevented it from larger scale deployment until now.

Through the new agreement, Microsoft (News - Alert) will put unsold ad space inventory into an exchange powered by AppNexus, beginning with space on Windows Live Hotmail. It will eventually add all inventory on MSN properties, as well as ads from third-party publishers like Viacom (News - Alert).

AppNexus announced it had raised $50 million in Series C funding back in October, led by Microsoft, Venrock, Kodiak Venture Partners and First Round Capital. AppNexus predicts more than 20 percent of online display advertising will be purchased through real-time bidding by 2012.

"Real-time is real, and AppNexus has built the ad technology platform to power this exciting new market," said Brian O'Kelley, CEO, AppNexus. "Our clients, including premier ad networks and demand-side platforms, will have access to the world's best technology infrastructure for capitalizing in full on the real-time revolution, across display ads as well as emerging platforms like mobile."

"Microsoft has a long-standing history of partnering with innovative technology companies that support the growth of a broader ecosystem," said Rik van der Kooi, corporate vice president of Microsoft's Advertiser & Publisher Solutions group, of the October investment. "We view AppNexus as a clear leader in the emerging real-time bidding space. Deepening our relationship with AppNexus will accelerate the availability of real-time demand via the Microsoft Advertising Exchange offering, providing broader access to our ad inventory. We look forward to working with AppNexus to help evolve the display advertising market."

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