Microsoft has pulled out its rather large wallet and given Facebook US$240 million for a 1.6% stake in the business. This would seem a sound move as a competitor blocking strategy and potentially to integrate Live Search into Facebook (similar to the $1 billion + deal Google has with MySpace). However, two considerations also come to mind: will this see a merger of MSN's content, Hotmail and IM properties into Facebook? And if not, did Microsoft pay too much? Only time will tell.
Microsoft trumps Google to snare Facebook stake
The Sydney Morning Herald, October 25, 2007
Microsoft will take a $US240 million ($267.66 million) stake in the wildly popular social-networking website Facebook as part of an expansion of the strategic alliance of the two firms, the companies said on Wednesday.
The deal to buy a 1.6 per cent stake values Facebook at $US15 billion ($16.8 billion).
Today's news comes less than four years after Mark Zuckerberg started the online social networking site in his Harvard University dorm room.
Besides validating Zuckerberg's decision to rebuff a $US1 billion takeover offer from Yahoo last year, Microsoft's money should be more than enough to pay for Facebook's ambitious expansion plans until the privately held company goes public.
Zuckerberg, 23, has indicated he would like to hold off on an initial public offering for at least two more years. In the meantime, Facebook hopes to become an advertising magnet by substantially increasing its current audience of nearly 50 million active users, who connect with friends on the site through messaging, photo-sharing and other tools.
The deal means Microsoft will become the exclusive third-party advertising partner for Facebook, and will begin to sell advertising for Facebook internationally in addition to the United States, the companies said.
"We are pleased to take our Microsoft partnership to the next level," said Owen Van Natta, vice-president of operations and chief revenue officer at Facebook.
"We think this expanded relationship will allow Facebook to continue to innovate and grow as a technology leader and major player in social computing, as well as bring relevant advertising to the more than 49 million active users of Facebook."
Reports said the deal came after fierce competition between Microsoft and Google.
The Facebook investment represents a coup for Microsoft because it provides the world's largest software maker with a toehold on one of the internet's hottest platforms and a potentially lucrative forum for selling online ads.
With the Facebook investment, Microsoft dealt a rare setback to Google, which had previously trumped its bitter rival in earlier bidding battles involving AOL and internet ad service DoubleClick.
Although News Corp's MySpace.com remains the largest social network, Facebook has been growing at a far more rapid clip during the past year.
Facebook attracted 30.6 million US visitors during September compared with 68.4 million at MySpace.
In September, Facebook was the 6th most visited property worldwide with 73.5 million unique visitors (aged 15 and over), and the 5th most highly trafficked property worldwide with 34.5 billion page views, according to ratings agency comScore.
The agency said Microsoft's social networking equivalent - called "Windows Live Spaces" - attracted an audience of 9.8 million.