Microsoft's $240 million says Facebook no fad after all

Summary:Updated: Guess Facebook isn't a fad after all. And Microsoft CEO Steve Ballmer put up $240 million to prove it.

Updated: Guess Facebook isn't a fad after all. And Microsoft CEO Steve Ballmer put up $240 million to prove it.

In a statement, the two parties outlined Microsoft's investment. The software giant will invest $240 million in Facebook and become the exclusive third party advertising platform for the social network. The deal values Facebook at $15 billion. Facebook said it won't detail investors beyond Microsoft at this point.

Under the agreement, 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 United States."

Facebook says the deal enables it "to take our Microsoft partnership to the next level." "It's consistent with our focus on innovation and growth," said Owen Van Natta, vice president of operations and chief revenue officer at Facebook, on a conference call.

Microsoft says the deal "is a great win for not only for our two companies, but also our collective users and advertisers." "The opportunity to further collaborate as advertising partners is a big reason we have decided to take an equity stake, and is a strong statement of our confidence in the long-term economics of this partnership," said Kevin Johnson, president of the Platforms & Services Division at Microsoft in a statement.

"This signals a big vote of confidence from Microsoft's largest advertising platform," said Johnson on the conference call. He added that Facebook increases the inventory on Microsoft's ad platform. "Our ad platform will get stronger and stronger."

Chatter about the deal picked up this afternoon as reports emerged that Microsoft was the winner of the Facebook sweepstakes. Google didn't have any direct comments about Microsoft's Facebook investment.

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Meanwhile, Ballmer has to eat some crow over recent comments. Something tells me Facebook CEO Mark Zuckerberg (right with Ballmer) took the dough with the crow. Here's what he had to say just a few days ago.

"I think these things [social networks] are going to have some legs, and yet there’s a faddishness, a faddish nature about anything that basically appeals to younger people."

Facebook is also built on technology that “dozens of people could write in a couple of years,” he said to the Times Online. At the same time, he acknowledged that the combination of the well-known brand and the community of more than 40 million users is of some value.

A few observations and lingering questions:

Facebook should send Google some flowers. Would Facebook have landed its $15 billion valuation without Google in the bidding? Probably not. Microsoft wasn't about to lose out to Google again. As for Facebook's valuation, Johnson noted that it's a big online advertising market that's growing. Meanwhile, Facebook could land 300 million users. Translation: Facebook will grow into its valuation. Who's driving Microsoft's ad unit? It's odd that Ballmer didn't have a quote in the statement since he reportedly was the one doing a full-court press on Facebook. This deal may have the fingerprints of Brian McAndrews, who runs Microsoft's advertiser and publisher solutions group, on it. McAndrews, who joined Microsoft via the aQuantive acquisition, probably sees an ad bonanza ahead. Would Johnson have done this deal without a little prodding?

Is Facebook boxing itself in? The Microsoft deal gives Facebook a nice cash infusion for expansion. But does it make sense to hitch your ad wagon to a third-place ad platform? By locking up the U.S. and international markets, Microsoft gets a win. Facebook gets its options limited. Is Ballmer right? Facebook may be the next Google. But there's a chance it's the next Geocities. The bright side: Microsoft has the cash and $240 million is a rounding error.

Topics: Microsoft, Banking, Social Enterprise

About

Larry Dignan is Editor in Chief of ZDNet and SmartPlanet as well as Editorial Director of ZDNet's sister site TechRepublic. He was most recently Executive Editor of News and Blogs at ZDNet. Prior to that he was executive news editor at eWeek and news editor at Baseline. He also served as the East Coast news editor and finance editor at CN... Full Bio

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