October 25, 2007
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Yesterday, Microsoft announced a $240 million minority investment in Facebook. With this acquisition,
Microsoft is saying it believes in social networking sites and Web 2.0 interaction.
Now Silicon Valley's attention is focused on one company: Facebook. Microsoft has also committed to expand its
pre-existing relationsip as exclusive advertising representative on the Facebook website.
One of the reasons that Facebook stands out from the large assortment of other social networking sites is
its fast rate growth in the last six to eight months.
Some of its users say they would have a hard time trying to get by without it anymore.
To some industry observers, Facebook represents
the future of the Internet since it's an elegant way for individuals to connect with each other.
The socially-networked Web is what many Internet users see as the next thing and Facebook is the accepted standard
in this segment.
The largest single change in Microsoft's expanded ad deal (many details of which remain secret) is that the
software giant will sell Facebook ads globally, and not just in the U.S.
In yesterday's conference call, Facebook Chief Operating Officer Owen Van Natta said that the company is
doubling its base of active users every six months. Today, that number is about 50 million.
Van Natta added that the company's growth internationally has been so stunning that users outside the U.S.
now represent over 60 percent of the total. He also made clear that the ad deal is not financially a part of
the equity investment.
Overall, Facebook expects to employ about 700 people by the end of next year. This will about double today's
total, Van Natta said.
While Facebook was reportedly already getting around $150 million in revenue, mostly from the pre-existing
U.S.-only Microsoft advertising deal, the minority equity stake must be comforting to Facebook CEO Mark Zuckerberg.
Facebook's CEO wants the company to focus mostly on improving its user experience, to figure out more ways
to help people efficiently connect with their friends, and to help software companies build better applications
inside the Facebook network.
Last May, Facebook's opening of its user base to applications from outside companies supercharged the company's
growth and further cemented its status as Silicon Valley's obsession of 2007.
In addition to a payment of $240 million, which will enable Facebook to grow considerably faster with no concerns
about financial strain, there will more payments of unspecified amounts as Microsoft sells those ads.
Overall, there are clear obstacles for Facebook to take any kind of money from Google, at least for now...
With this acquisition, Microsoft is effectively blocking Google's potential play into Facebook.
It also keeps Google from creating an even larger potential pool of advertising partners to extend its own
dominance of advertising on the Web. For its part, Google has already partnered with MySpace and AOL, but at
great expense some say.
Microsoft's minority acquisition in Facebook was announced just as Google was conducting its own analyst day
on its campus. This is likely to stir up a lot of talk, despite whatever impressive information Google itself
may be dispensing. Some say this was extremely well timed on the part of Microsoft.
So Microsoft's 1.6 percent minority position in Facebook wins a years-long insurance policy for the social site,
without it having to give up very much. From Microsoft's perspective, it's a big win and worth every penny, even
though it had to accept a Facebook company valuation of a staggering $15 billion.
It was as much about keeping Google from acquiring a piece of Facebook as it was about buying one for itself.
"For everything positive it does for Microsoft, it does something quite negative for Google, and in some ways
that's the benefit, as ironic as it sounds. Essentially, it's more or less the return bout for having lost on
YouTube," said analyst Roger Kay, President of Endpoint Technologies Associates.
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Source: The Register
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