Microsoft is to sell online marketing agency Razorfish in a $530m stock and cash deal with French advertising firm Publicis Groupe.
Razorfish will maintain its current management as an autonomous unit of the VivaKi division of Publicis, according to the New York Times.
Analysts said the recession's effect on advertising meant Microsoft had to settle for less than the $600m to $700m it had been hoping for, according to other US media reports.
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The five-year agreement calls for Publicis to buy display and search advertising on Microsoft properties like MSN.com and Bing, while Microsoft is to spend a certain amount with Razorfish.
Formerly known as Avenue A/Razorfish, Microsoft acquired the agency as part of a $6bn takeover of aQuantive in 2007.
Razorfish is one of the largest digital agencies, with 2,000 employees. Its clients include Dell, Audi, Disney and Nike.
Publicis Groupe beat auction bids from the world's largest agency company, WPP, and the largest agency company in Japan, Dentsu.
Publicis ranks fourth worldwide, behind WPP, the Omnicom Group and the Interpublic Group of Companies.
"The deal is another step forward in realising our strategic vision of building a world leader in digital communications," said Publicis chief Maurice Lévy in a statement.
The deal is expected to close before the end of the year.