Microsoft buys stake in Facebook

Added by The Editor, 10 months ago.

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In a hearty endorsement of Web 2.0, software giant Microsoft this week bought a 1.6% stake in social networking site Facebook for $240 million.

Effectively, that values Facebook - which is expected to make a profit of just $30 million this year - at a whopping $15 billion.

"We are pleased to take our Microsoft partnership to the next level," said Owen Van Natta, 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 nearly 50 million active users of Facebook."

Microsoft was battling with Google to take a stake in Facebook, and Yahoo! tried to buy the firm last year.

Our take: This move is designed to enable Microsoft to expand its web advertising strategy and promote its own web services. Under the expanded strategic alliance that is part of the deal, Microsoft will be the exclusive third-party advertising platform partner for Facebook, and will begin to sell advertising for Facebook internationally, in addition to the US. Some industry watchers have argued that Google might have been a closer fit in terms of overall philosophy. However, it may well have been too expensive for the company to buy out Microsoft from its current deal to supply ads for Facebook in the US. Either way, during the conference call to announce the deal, Facebook executives left open the possibility that more investors may be included in this round of financing, although they declined to disclose who those investors might be.

Comments

There are currently 5 comments about this blog.

Victoria Furness, 9 months ago

To add to this post, Facebook recently announced the launch of its own advertising services. These are already up and running, whereas Microsoft is yet to start selling display ads on Facebook's site, presumably while it sorts out the finer details of integrating both companies’ technology. Yet Facebook’s launch shouldn’t detract from its deal with Microsoft - if only because the social networking site is widely expected to be taking the majority of revenue from any ads sold on its side through Microsoft - but instead should be interpreted as an indication of how big Facebook expects the total advertising opportunity to be on its site.

chris gabriel, 10 months ago

What interests me is the notion that its worth paying for a social networking site, when the propensity for people making their personal information public is virtually defacto now. Google could set one up tomorrow and a zillion people would join. The Realtime Generation research showed that 13-17 year olds are members of at least 2 social networking sites, and growing. I have to say however, this generation may not take kindly to having their details 'bought' for $240million, and with fickle loyalties, they may choose to take their information elsewhere.

Victoria Furness, 10 months ago

There are rumours that Google's planning its own social network, in which case Facebook will become a competitor. That said, it's only a rumour, and the terms of this deal haven't been made entirely clear -does it include search as well as banner advertising, for example? If this isn't the case, there could potentially be another way that either Google or Yahoo! could work with Facebook in the future.

George Black, 10 months ago

Do the '50 million active users of Facebook' really want this relevant advertising that the chief revenue officer at Facebook talks about? I suspect not. Even mobile phones are now a growing platform with which to bombard us with increasing volumes of marketing and advertising messages.

Gary Eastwood, 10 months ago

Microsoft recently lost out to Google, which secured a similar deal with MySpace (the number 1 social networking site - Facebook is number 2). Some commentators have suggested that the Microsoft-Facebook deal was hastily thought out as a 'knee-jerk' reaction to the Google-mySpace deal. Time will tell if it will be a good fit of benefit to both parties.