Wednesday, October 24, 2007

Facebook is worth $15 billion!

So it's now confirmed, Microsoft has paid $240 million to have 1.6 percent stake of Facebook. But what does that mean to the on-line advertising industry? Do you think Microsoft will be able to increase its on-line ad revenue to the same level as Google? Or is Microsoft incapable of gaining any bigger market share until it develops a better way of selling on-line ads?

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Associated Press & MSNBC.com: Updated: 5:25 p.m. ET Oct. 24, 2007

SAN FRANCISCO - Rapidly rising Internet star Facebook Inc. has sold a 1.6 percent stake to Microsoft Corp. for $240 million, spurning a competing offer from online search leader Google Inc.

The deal announced Wednesday after several weeks of negotiation values Palo Alto-based Facebook at $15 billion — less than four years after Mark Zuckerberg started the online social networking site in his Harvard University dorm room.

Microsoft also will sell Internet ads for Facebook as the site expands outside the United States, broadening an existing marketing relationship that began last year.

Besides validating Zuckerberg's decision to rebuff a $1 billion takeover offer from Yahoo Inc. last year, Microsoft's money should be more than enough to pay for Facebook's ambitious expansion plans until the privately held company goes public.

Zuckerberg, 23, has indicated he would like 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 audience of nearly 50 million active users, who connect with friends on the site through messaging, photo-sharing and other tools.

The Facebook investment represents a coup for Microsoft because it provides the world's largest software maker with a toehold on one of the Internet's hottest platforms and a potentially lucrative forum for selling online ads.

Redmond, Wash.-based Microsoft has been trying to become a bigger force in Internet advertising for several years, only to watch Google deepen its dominance of the space.

In 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 totaled $13.3 billion.

With the Facebook investment, Microsoft dealt a rare setback to Google, which had previously trumped its bitter rival in earlier bidding battles involving AOL and Internet ad service DoubleClick Inc.

"Making this investment ... is a great win for not only for our two companies, but also our collective users and advertisers," Kevin Johnson, president of Microsoft's platforms and services division, said in a statement.

The coup shows Microsoft is getting 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. Two years ago, I would have said they don't get it at all."

Tim Armstrong, who oversees Google's North American advertising, declined to comment on the Facebook negotiations during s meeting held with analysts Wednesday at the company's Mountain View headquarters.