Microsoft has agreed to pay a massive amount of money for a very small stake in hot social networking site, Facebook. Microsoft now also becomes Facebook's "exclusive third party advertising platform," the companies say.
Microsoft will buy a $240 million slice of Facebook; the software giant is valueing the whole of Facebook at $15 billion. That's Billion with a B. For some perspective, MySpace sold out to News Corp. for only $580 million in 2006.
Here's how Kevin Johnson, president of Microsoft's platforms and services division explained the massive valuation during a conference call with press and analysts Wednesday afternoon: "If you believe that Facebook will get to the level of 200 million users, 300 million users--and we certainly believe they will--then you can very quickly start getting to this level of valuation." Facebook says it has nearly 50 million users today.
But Microsoft has the $240 million. And what it's buying with it may be more symbolic than real. Microsoft is trying to buy a bit of Facebook's mojo. And it's good mojo indeed. Facebook is seen as hottest and coolest social networking site around--much more refined than MySpace; and widely respected among geeks for its bold move to make itself a technology platform upon which third party developers around the world can build widgets and apps.
Meanwhile, Microsoft has been getting creamed by Google in the Web advertising business. If you don't believe it, have a look at Google's stock price. Compared to Google, Microsoft is seen as a little stuffy, a little slow, a little old-school. Bad mojo. By becoming a stakeholder in Facebook, Microsoft forms an official connection between its name and something new, smart, groundbreaking. That association may be the real value of the deal for Microsoft.
And remember, the Web advertising business is still in its youth, and growing quickly. If there was ever a time for Microsoft to start making its move on Google, it's now.
Microsoft and Google had been widely rumored to be locked in fierce competition to buy a piece of Facebook in the days leading up to today's announcement. But the two companies were said to be fighting over a significantly larger stake than the $240 million one announced today. Facebook declined comment on that issue during the conference call.
"We have been working with Microsoft for a year now, and six months in we decided to expand the relationship, to expand that advertising partnership beyond the United States," said Facebook chief revenue officer Owen Van Natta. For Facebook, the deal can only be seen as a positive. On paper it sold a little for a lot, and will put that Microsoft money to good use extending its reach to new members internationally.
(Pictured above: Facebook founder Mark Zuckerberg)
