Microsoft deal values Facebook at $15 billion

Source: Technology Digital

Date :10/25/2007 4:16:09 AM

Microsoft has beaten Google, paying $240 million for a 1.6 percent stake in Facebook, a deal that values the company at a stunning $15 billion.

By sealing the deal yesterday, Microsoft finally trumped Google after losing previous high-stakes bidding battles involving a stake in AOL and ownership of online video sharing pioneer YouTube and Internet ad service DoubleClick Inc.

"This was a muscle-in from Microsoft," Gartner analyst Allen Weiner said. "It would have been a nice-to-have for Google, but it was certainly not essential."

Association

Besides buying a stake in Palo Alto-based Facebook, Microsoft also will sell Internet ads for its Web site outside the United States, broadening a marketing relationship that began last year.

"This is a strong statement of confidence in this partnership and in Facebook," Kevin Johnson, president of Microsoft's platforms and services division, said during a Wednesday conference call with reporters and analysts.

In 2005, News Corp. paid $580 million for outright ownership of MySpace.com, the only social network larger than Facebook. With its investment, Microsoft established Facebook's current market value at $15 billion less than four years after Mark Zuckerberg started the Web site in his Harvard University dorm room.

Already considered a whiz kid, Zuckerberg, 23, now looks even smarter for rebuffing a $1 billion takeover offer from Yahoo Inc. last year. And Facebook now should have more than enough money to pay for its expansion until it is ready to go public.

Zuckerberg has indicated he wants to hold off on an initial public offering for at least two more years. In the meantime, Facebook hopes to become an advertising magnet by substantially increasing its current worldwide audience of nearly 50 million active users who connect with friends on the site through messaging, photo-sharing and other tools it offers.

Rapid growth

Although MySpace remains the largest social network, Facebook has been growing much faster in the past year.

Facebook attracted 30.6 million U.S. visitors during September compared with 68.4 million at MySpace. Microsoft's entry in the social networking arena — "Windows Live Spaces" — attracted 9.8 million U.S. visitors, according to comScore Inc.

During its fiscal year ending in June, Microsoft's online ad revenue rose 21 percent to $1.84 billion. Over the same period, Google's ad revenue soared 64 percent to $13.3 billion.

Johnson believes Facebook could attract as many as 300 million users worldwide within the next few years, giving Microsoft ample opportunity to recoup its investment.

"We are pleased with the economics of this," Johnson said.

Investors seemed happy, too. After rising 35 cents to finish Wednesday's regular session at $31.25, Microsoft shares added another 35 cents in after-hours trading.

Owen Van Natta, Facebook's chief revenue officer, said the company talked to several suitors before settling on Microsoft. He declined to provide details.

Know-how

Microsoft's successful courtship of Facebook shows the 32-year-old company is becoming more savvy about the Internet, said Matt Rosoff, an analyst for the research group Directions on Microsoft.

"I think they understand it now and they're proceeding correctly," Rosoff said. "Two years ago, I would have said they don't get it at all."

October 25, 2007

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