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

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.

zuckballmer.jpgMeanwhile, 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

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  • $15 Billion for FaceBook??? Can you say Dot bomb II

    Come on, $15 Billion???? Not today, not tomorrow, not ever.

    Hey, I like facebook (for what it is) but there is no way its worth $15 billion and at some point people are going to wake up and see another Dot Bomb in the making.
    • If it goes IPO

      But if it doesn't go IPO and just plays with house money from private investors then the market isn't directly impacted.

      I agree. I don't think it's worth remotely near $15billion either. And I'm in online marketing. The revenue's just not there to justify that type of valuation currently (and for the forseeable future.) Big money brand advertising will obviously follow the younger crowd. But big money brand advertising isn't stupid either. For major bucks they'll demand better ROI than what you can currently get off Facebook (or any emerging behavioral ad platforms.) Facebook is going to have to come up with an entirely new ad model that will scale on a mass level to attract big dollars while offering a big return.

      Still, Microsoft has already had a nice long peek under Facebook's skirt as the main 3rd party ad platform so they obviously must think there's some potential value there . . . that and they'll do anything at this point to try head off Google.
      • I just comparer it to

        what Google paid for YouTube, $1.8 Billion (which I think has a lot more advertizing potencial) and gotta wonder who pulled this number out of thin air.
      • Yep, this is kind of a poison pill for Google, and keeps Facebook flush in

        cash. How could Google buy a site that was committed to MS as the sole provider of advertising.

        MS probably overpaid by a factor of 5, just to keep them flush in cash and of course the poison pill, both of which will be sure to keep Google out.
    • Just goes to show you how afraid MS is of Google. They way over paid for

      the stake in Facebook to keep Facebook flush in cash, and out of the hands of Google.

      Probably the best strategy for Microsoft given the circumstances. An outright buy of Facebook would be a huge mistake for Microsoft, as it would be a HUGE culture clash and a VERY embarrassing and long switchover from Linux to Windows.
    • Aw liitle No_Ax, $15 Billion isn't that much to Microsoft.

      I believe that you would call it chump change (or more money than you will ever see).
    • agree, kinda scary

      Especially is the face that Facebook is under fire for some of it's members sexually soliciting children.
      • Really quite simple. MS knew full well they were paying way too much, like

        they paid a huge license fee to SCO for something they did NOT need. MS just wants to make sure that Facebook has PLENTY of cash to stay independent, and out of Google's reach. And, the added poison pill with MS the sole source for advertising.

        Really pretty cheap deal for MS to keep Facebook out of Googles hands. MS would have bought Facebook outright if it were not for the huge culture clash, and the embarrassment they would have trying to convert those Linux servers to Windows.
  • RE: Microsoft's $240 million says Facebook no fad after all

    "The bright side: Microsoft has the cash and $240 million is a rounding error."

    I liked that quote!
  • 40 million people

    The information on 40 million subscribers has just been transfered to Microsoft databases. You just thought MS passport was intrusive.

    Microsoft is Mother.
    Microsoft is Father.
  • aQuantive isn't a 3rd place platform

    People acted as though Microsoft was insane when they bought aQuantive for roughly twice what Google paid for Doubleclick. But anyone who knows anything about the business (particularly Doubleclick's DART vs aQuantive's Atlas) will tell you which is the superior platform.

    A good read on why aQuantive was a good aquisition (not my site btw)
  • This is nothing more than a poison pill, and of course CASH to keep

    Facebook out of Googles hands. Microsoft knows that there is NO way that they could digest Facebook because of the severe culture clash that would ensue, and of course the ugly problem of converting the Linux servers all over to Windows.

    So, MS knew they could tempt the Facebook management with the ability to stay independent and determine their own destiny.

    Really, not a bad strategy on the part of Microsoft given the situation. Sure, they probably paid $200 million too much, but that is a rounding error in the books. This is a high stakes chess game being played out in front of us.
  • Um, dumping 240 million

    doesn't prove anything about facebook other than Microsoft dumped money into it. Since pretty much nothing MS has dumped money in, started or invested in outside of Windows and Office has actually made any money for the company in the last 8 years, why should Facebook be any different.

    In other words, the paper tiger mewls again.
    • dumping 240 million

      240 MILLION ahh the money could be better spent on moving support out of India.
  • Sounnds like

    Is this just another spin off of Micrsoft LIVE? This ain't Vegas baby what you do online stays on line. There is no black hole and We all know how secure Servers are!!!!!
  • It Would Have Been A MAJOR Success

    If Google had bought it..

    Now that Ballmer's fat sweaty mitts are in it it's going to flop.
    • Well, Microsoft is not so worried about Facebook not doing well, as keeping

      it out of the hands of Google. The HUGE cash infusoin, and the poison pill, will do just that. And, Facebook remains independent with MS only owning only a small percentage, so not sure about how much trust Facebook will lose.
  • RE: Microsoft's $240 million says Facebook no fad after all

    Have you seen this presentation of the real founders of Facebook? It is quite scary to think that such social networking is connected to the CIA.

    Sincerely, A T Mann
  • Google did not really want a bit of Facebook

    Google stayed in the stacks just to make sure MS paid too much. The valuation of Facebook would have been smaller without Google. Facebook members will leave like they have AOL once they see the social networking site become a haven for targeted advertising based on members profiles. Members by the way tracked by our government.

    Google will have their own SN site. Remember Google has not given it to reporting to National Security, like the Phone companies have.
  • RE: Microsoft's $240 million says Facebook no fad after all

    It does appear like staking out turf to keep the competition away from the territory. 15 Giga-buck valuation for a 40 million subscriber base ? Let's see, that is close to $400 per subscriber. And how many of those accounts are unique (don't tell me you have never created an alias account) ?

    For that price, they are basically buying an iPhone for everyone. Check, please !