This morning at the Financial Analyst’s Meeting (FAM), being held on Microsoft’s campus, Satya Nadella announced an extension of Microsoft’s U.S. relationship with Facebook to encompass search.  An email from Waggener Edstrom clarifies:

As part of the deal, Microsoft will work with Facebook to bring its customers Live Search-powered web search and search ads by the end of the calendar year. Facebook will work with Microsoft to design the best search experience for Facebook’s customers and advertisers.

While Microsoft has been in partnership with Facebook on ads already, powering search on Facebook seems to be quite a coup. 

Further details should be coming soon.  During most of the morning, Steve Ballmer was onstage, saying at one point that he would be taking over a part of the program for Kevin Johnson, who is leaving the company “in 3 weeks”, according to Ballmer.  Ballmer spent quite a bit of time on the online services businesses, taking pains to point out that Windows Live, MSN, and Microsoft Advertising are all holding their own, and that the 1.2 billion dollar shortfall in online services is almost entirely due to investments in Live Search.   Here’s a somewhat fuzzy screenshot of the powerpoint slide illustrating this: