Microsoft has bought a 1.6% stake in Facebook for $240m - a deal that values the yet-to-be-profitable online hangout at $15bn and will not provide great reading for the founders of YouTube and MySpace.

The move will see an expansion of Microsoft’s existing ad partnership with the social networking site, through which it sells banner ads in the US.

It said it would become “the exclusive third-party advertising platform partner for Facebook”, as well as starting to sell ads for the site internationally.

Sixty percent of Facebook’s users come from outside the States, according to the site. 

In a statement, Owen Van Natta, Facebook's chief revenue officer, said:

“We are pleased to take our Microsoft partnership to the next level. 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 50m active users of Facebook.”

The two companies did not say whether the agreement covered search advertising, so it's not clear exactly what it means for Microsoft and its rivals, as well as ad networks targeting Facebook's audience through third-party applications.

Although it reportedly values Facebook at 500 times earnings, it is all about potential and shows how well Google and NewsCorp did when they bought YouTube and MySpace for $1.65bn and $580m respectively.

But it is also clearly a big blow for the search giant, which had hoped to gazump Microsoft and target Facebook’s users with ads.

It prompted chief exec Eric Schmidt to say yesterday that its ad partnership with MySpace was going “very, very well”.

TechCrunch reckons that the social network chose the “path of least resistance” by spurning Google:

“While Google would have been a closer fit in terms of it overall philosophy (more open than not), it may have just been too expensive to buy out Microsoft from its current deal to supply ads for Facebook in the US. Given its deep ties with Microsoft, sticking with them was always the path of least resistance.”

Nevertheless, hats must go off to Facebook founder Mark Zuckerberg for rebuffing previous takeover approaches that valued the firm at a much lower figure.

Microsoft said it was “in the realms of possibility” that Facebook could end up with a membership base of between 200m and 300m.

According to comScore, it currently stands at 50m - much less than MySpace's 107m, but growing more quickly.

Related stories:
Launching a Facebook widget – dos and donts
MySpace confirms API move


Published 25 October, 2007 by Richard Maven

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Comments (1)

Matthew Finch

Matthew Finch, Head of Sales & Commercial at Warner Leisure Hotels

This is an important move for Microsoft, not only in securing a long term advertising deal (delivering huge revenues) but ensuring they have a place in the world of social networking.

Whether placing a value of $25bn on Facebook is truly justified for a company that is currently only turning over $150m and has a user base half that of Myspace, we will have to see. With this investment, Microsoft see long term potential in Facebook, and not just a short term trend that will soon die, as many fear.

Certainly in the UK we see users turning their back on Myspace switching to Facebook, and I am sure there are many social networking sites yet to come, and then go.

over 10 years ago

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