Microsoft Buys Facebook Stake
Microsoft Buys Facebook Stake
October 25, 2007: Microsoft has purchased a 1.6% equity stake into the social networking giant, Facebook for $US 240 million, which puts Facebook’s total value at $US 15 Billion.
Microsoft has beat out Google in its acquisition of an equity stake in Facebook, an important victory when you consider the in-roads into internet advertising that Microsoft has been trying to make. The deal will see Microsoft become the exclusive third-party advertising platform partner for Facebook, which entitles Microsoft to begin selling advertising space on Facebook across the globe.
Microsoft was actually the favorite to come out trumps with a Facebook deal as the two companies have been involved in a successful advertising partnership for quite some time over the past year. “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.
The deal confirms months of speculation as to what kind of value would be placed on Facebook, with it now worth such a hefty sum and becoming so big so rapidly it runs certain risks, particularly with a giant empire like Microsoft buying in. “Once they start getting big comps like Microsoft on their share register and in the boardroom, old world strategies and commercial thinking will come into play” said Steve Hodgkinson, Research Director, Australia/NZ at Ovum.
The funding boost will be a thorn in Facebook’s major rival, Myspace’s side who has been loosing the purse strings and releasing a host of new features to try and maintain its lead. While Myspace still has the biggest user base and daily activity numbers, Facebooks growth has been exploding and is catching up in numbers fast.
“The bigger Myspace and Facebook become, the greater the potential for them to trip over themselves and become ‘un-cool’, they can reach a ‘cool’ critical mass and if they get too big they may fall out of favour with their target audience. This is particularly true if they demonstrate old world behavior like commercial profit chasing.” Hodgkinson said.