Microsoft Invests $240 Million Into Facebook; Gets 1.6% Equity And Exclusive Ad Partnership Till 2011

Posted Oct 24, 2007

“We are pleased to take our Microsoft partnership to the next level,” stated Owen Van Natta, the Chief Revenue Officer of Facebook. “We think this expanded relationship will allow Facebook to continue to innovate and grow as a technology leader and major player in social computing, as well as bring relevant advertising to nearly 50 million active users of Facebook.”

If Microsoft and Google was in a breakdance contest, Steve Ballmer would tell Eric Schmidt that he just got served. This is because Microsoft and Facebook signed a deal worth $240 million. Microsoft paid $240 million for a 1.6% equity ownership in Facebook and also received an exclusive advertisement partnership agreement until 2011. The investment gives Facebook a $15 billion valuation.

The first thought that comes up for me is whether Microsoft paid too much, especially because YouTube, the streaming video website that receives much more traffic than Facebook, was bought by Google for roughly $1.7 billion and they got 100% ownership. But then I remembered that YouTube was somewhat of a liability for Google since all sorts of copyright infringement cases were filed against Google after the acquisition.

Another reason why Microsoft may not have paid too much is because of the quality of users that the Redmond, Wash. based company has access to. Facebook’s core user demographic are college students and professionals that see value in networking. YouTube users are no better than MySpace-quality. Watch any YouTube video and you’ll find that most of the comments made are absolute garbage. When Facebook opened their platform for everyone, (which happens to be the first post ever written on Pulse 2.0), they were able to maintain a certain kind of elegance. I define elegance as being able to maintain high security standards and not receive friend invites from fake users that involve dirty websites. That problem is YouTube and MySpace’s Achilles’ heel.

“Making this investment and expanding this partnership will position Microsoft and Facebook to better take advantage of advertising opportunities around the world, and is a great win for not only for our two companies, but also our collective users and advertisers,” stated Kevin Johnson, the President of Platforms & Services Division at Microsoft Corporation. “We have partnered well over the past year and look forward to doing some exciting things together in the future. 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.”

While it is easy to talk highly of Facebook after this investment, the social network is having its share of problems too. The problem that I’m most specifically talking about is applications. A lot of undesired applications (profile add-ons) are constantly being solicited. If this problem continues to persist, users may begin to look elsewhere. Personally, I’ve been receiving a lot more invitations to LinkedIn.

My opinion definetely differs from others because Facebook Applications are truly hot right now. As a matter of fact, various venture capital firms are allocating funds that are to be used strictly on Facebook Applications. But the problem is that unsolicited applications makes Facebook no better than spam being sent to users on YouTube and MySpace. And when Facebook was initially created, a core number of their users were Friendster and MySpace refugees.

Zuckerberg, you have a lot of money to play around with here. If you’re reading this, remember to always put the security and comfort of the users first or else you’ll face the wrath of entrepreneurs that will aspire to do nothing more but to steal your users. Those are my two cents, take it or leave it.

Information Source:
[1] Microsoft Press Release: Facebook and Microsoft Expand Strategic Alliance