Microsoft gets a piece of Facebook

David Brashaw/Ovum
26 Oct 2007
00:00

Microsoft has taken a 1.6% stake in social networking site Facebook for $240 million and in return becomes the exclusive advertising platform for Facebook worldwide. Microsoft was already Facebook's partner for advertising in the US.

Much is being made of the implied valuation of Facebook of $15 billion. We think this is one time when simple arithmetic (240x100/1.6=15,000) is misleading. What really counts here is that Microsoft has tied down the advertising partnership with Facebook. Since it is one of the most rapidly growing Web properties, this is a landmark deal for Microsoft which was a late starter in the syndicated advertising business.

We also set aside thoughts that by taking a mere 1.6% stake, Microsoft has somehow "locked out" Google from eventually taking ownership of Facebook. There's a very good reason why Facebook can't allow Microsoft to have a free-run: it would severely damage its valuation when it does eventually float. As my finance lecturer drilled into me at business school, the market for shares is a market for control.

Our longer-term concerns about Facebook are that it clearly has a way to go in its development, and this is one area that Microsoft may be able to both teach it and learn from it. Current use of sites like Facebook at work is more like social "notworking" than networking, yet these tools clearly have a long-term role in making organisations of the future get far more from their peoples' skills and knowledge.

David Bradshaw, principal analyst at Ovum

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