Microsoft is getting out of the display ad business

Microsoft is shutting down most of its display advertising business and handing over parts of it to AOL and AppNexus, the company said in a blog post this afternoon.

Up to 1,200 employees could leave Microsoft as part of the change, according to Bloomberg's Dina Bass reports, who reported the news earlier.

As part of the deal, AOL will replace Google Search with Bing as its default search engine, and AOL will handle direct sales of advertising across Microsoft's content sites, including MSN, in nine markets, including the United States and the UK.

AOL will offer jobs to up to 1,200 Microsoft employees as part of the deal. Microsoft does not expect to lay off any employees, and said "We expect to transition our sales and trade marketing employees in these nine markets to AOL, subject to compliance with local law and employee consultation obligations."

AppNexus will have an expanded role selling programmatic advertising in 10 markets in Europe, and will now provide programmatic advertising for Microsoft in 39 markets overall.

Microsoft has been making a slow exit from the online advertising market for several years, and that shift has accelerated as CEO Satya Nadella is focusing the company on core businesses such as cloud computing and productivity.

In 2012, Microsoft took a $6.2 billion write down for aQuantive, a company it acquired in 2007 in an attempt to take on Google and other companies in online advertising. In 2013, it sold part of the remnants of that business, the Atlas ad platform, to Facebook.

In fall 2014, Business Insider reported, Microsoft laid off much of its global ad sales team, which was responsible for selling advertising on MSN and other related sites.

Earlier this year, an internal power struggle at the company pitted the Windows group against MSN and other consumer online businesses — both groups wanted to use the default home page in Internet Explorer to promote their own products. Nadella essentially chose Windows and moved MSN under Windows leader Terry Myerson.

We have also heard some chatter that Microsoft under Nadella was considering getting rid of the MSN business entirely, but Microsoft has denied that speculation. Today's news certainly suggests that MSN will continue for now, but Microsoft will no longer be selling the ads against it.

Microsoft told us, "Today’s news is evidence of Microsoft’s increased focus on our strengths: in this case, search and search advertising and building great content and consumer services. This evolution in our approach to display advertising allows us to keep this focus, while working with industry leaders to market our services."