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October 24, 2007

Microsoft wins big bucks battle for a sliver of Facebook

Posted by David Hunter at 8:38 PM ET.

The long series of rumors finally came true today as Microsoft won the bidding to acquire a small equity interest in the Facebook social networking site and got the rights to foreign ad sales:

Facebook and Microsoft Corp. today announced that the two companies would expand their advertising partnership and that Microsoft will take a $240 million equity stake in Facebook’s next round of financing at a $15 billion valuation. Under the expanded strategic alliance, 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 continues to experience strong growth both in the U.S. and international markets; almost 60 percent of Facebook’s users are outside the U.S. With an average of 200,000 new users registering each day, Facebook continues to be one of the most-trafficked sites on the Internet.

That would be 1.6% of Facebook which is quite a bit less than the 5-10% predicted by recent rumors, but it was at the highest rumored Facebook valuation of $15 billion. Microsoft’s original advertising alliance with Facebook was apparently US only although that wasn’t spelled out at the time. Predictably, there are also some features of this new deal which haven’t been revealed.

I’m sure there will be a lot of gnashing of teeth over the huge valuation for a nearly revenue-free Facebook, but for Microsoft the best way to look at it is to ignore the equity and figure that they made an insurance bet of $240 million to lock in the Facebook eyeballs on their ad platform. It’s just another eyeball auction with the twist that Facebook’s financial backers needed an extra perk.



Filed under Acquisitions, Advertising, Alliances, Coopetition, Facebook, General Business, MSN, Microsoft, adCenter

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4 Responses to “Microsoft wins big bucks battle for a sliver of Facebook”

  1. Facebook gets additional $500M from hedge funds? -- Microsoft News Tracker Says:

    [...] Among the unanswered questions surrounding yesterday’s Microsoft-Facebook deal, was whether there were any other investors besides Microsoft in this round of financing. Now rumors are circulating that two hedge funds also chipped in for an additional $500 million. [...]

  2. Pesky Google pops up all over Microsoft’s patch -- Microsoft News Tracker Says:

    [...] Yep, the Facebook with which Microsoft just signed a big advertising deal. Google also did their non-technical homework on OpenSocial by signing up providers of business social networks as well as all of the prominent non-Facebook personal social networks (e.g. MySpace, Friendster, Bebo, Ning, and Google’s own orkut) and a raft of top Facebook application developers. [...]

  3. Microsoft a wallflower at the big Facebook bash -- Microsoft News Tracker Says:

    [...] Yesterday was Facebook’s big debut party for their new platform designed to milk some cash from their faithful members via “social” advertising. Any sarcasm on my part would be superfluous after Nicholas Carr’s application of a flamethrower, but one interesting aspect was that Microsoft, who a year ago was working with Facebook “on future technology and advertising initiatives” and recently bought a slice of the company, was relegated to the position of being merely one of 60 initial advertisers on the new platform. [...]

  4. New plot twists in Microsoft-Yahoo soap opera | Microsoft News Tracker Says:

    [...] Still, it’s all up to the Yahoo shareholders and which way they jump will mostly be determined by how much money they get upfront and not in some halcyon future. In that regard, Microsoft is rumored to be in talks with Rupert Murdoch’s News Corp. about merging MSN, Yahoo, and MySpace presumably with the objective of having News Corp. help Microsoft offer more for Yahoo. Since Google has the MySpace search ad contract and Microsoft owns part of MySpace competitor Facebook, such a plan would provide even more fireworks. [...]

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