Microsoft-Facebook deal: What a snooze
Posted
Oct 25 2007, 11:06 AM
by
Kim Peterson
So Microsoft spent $240 million for a 1.6% stake in Facebook. Big deal. Microsoft spends that kind of money the way most of us shell out for a grande latte. It means nothing.
That hasn't stopped people from freaking out about Facebook's valuation. Microsoft's investment values the social networking site at $15 billion. But understand this: no one is buying Facebook. That $15 billion is an empty figure. It also means nothing.
I read this deal two ways. First, Facebook got a nice chunk of change from Microsoft without having to give much in return. Second, Microsoft made an advertising business deal and that's it.
Here's what it means for all the parties:
Microsoft -- Now gets to sell the banner ads on Facebook's pages outside the U.S., with both companies splitting the proceeds. (Microsoft is already handling the banner ads inside the U.S. through 2011.) Oh sure, Microsoft gets to say nyah-nyah-nyah to Google, who was also interested in a Facebook stake. But with just a 1.6% stake, Microsoft gets no control of Facebook.
Facebook -- Big winner. Doesn't have to get in bed with Microsoft too much, and takes home $240 million. Microsoft was reportedly once thinking about putting $300 million to $500 million into the startup for a 5% stake. Facebook was able to squeeze out a better deal. And Forbes says that Facebook just raised another $500 million from two New York City hedge funds.
Google -- A Facebook deal would certainly have helped the company's growing banner ad business, but Google doesn't need the partnership. Google already dominates the U.S. online advertising market and is moving into new businesses at top speed. Compared to that, Facebook is small potatoes.
