What Microsoft Gets from Facebook
 Joe Wilcox
Microsoft's minority investment in Facebook is chump change at $240 million. It's a good move for Microsoft, but questionable for Facebook, which now looks like a poster company for the 1990s dot-com boom gone bust. |
Facebook execs are sure to get big heads over the sudden $15 billion valuation brought by Microsoft's puny 1.6 percent stake. Where is that $15 billion going to come from? Analyst estimates put 2006 revenues for privately held Facebook at only about $100 million. The big money seems to come more from sponsorships.
Currently, Facebook has about 50 million users, which means the social networking service values each user at about $300. I use Facebook and can't imagine where Facebook made 300 bucks on me this year.
To date, social networks are little more than watering holes, where when the water gets dirty or the surroundings become too crowded, people move on to somewhere else.
Problem: There's some crazy popular concept that social networking is something new. Online communities, such as bulletin boards, IRC or newsgroups long predate the World Wide Web. Operations like Facebook and MySpace are merely the newest incarnations of online community, and they are by no means the be-all, end-all social watering holes.
What differentiates Facebook is the platform approach, which makes the service like an online operating system. Fine, but again, where will the revenue come from when so many Facebook applications are free? Even if Facebook charged developers, they can only stick around the platform if there is money to be made.
During a conference call this afternoon, Kevin Johnson, president of Microsoft's Platform & Services division, made absolutely clear Microsoft's objectives in making the investment: Advertising. As part of the deal, Microsoft will now provide advertising for Facebook internationally, not just the United States.
Johnson described the deal as a "major syndicated advertising [deal] for Microsoft" and a "win, win, win situation." The deal increases the amount of "inventory on our advertising platform" and creates opportunity to deliver "new ad types that are unique to the social experience," he emphasized.
Online advertising will grow from about $40 billion today to $80 billion in a few years, Johnson said.
Johnson didn't say what I will: Microsoft really paid Facebook, again, for the right to offer advertising on the social networking service. There is something back-to-front about paying a customer to be one. But for a mere $240 million, Microsoft:
- Gains a showcase MSN adCenter customer.
- Reaches several hot demographic categories, including 18-to-34 year-olds.
- Greatly expands the number of advertising impressions.
- Beats out Google as a provider of Facebook ads reaching international customers; about 60 percent of Facebook active users are outside the United States.
Still, there have been rumblings for more than six months about ad campaign after ad campaign flopping on Facebook. Certainly, Facebook has ad pull, but its percentage of online advertising reach was only 17 percent in September, up from 13 percent in April, according to ComScore.
I don't see where the advertising growth anywhere supports the $15 billion valuation. Simply put: Facebook and Microsoft have different objectives behind the investment, and Microsoft's objectives are more sensible and pragmatic.
Related Posts:
- Microsoft Punches Out Google at the Facebook Altar, Google Watch, Oct. 24, 2007
- Microsoft's Facebook in the Mirror, Microsoft Watch, Sept. 25, 2007
- Live Hotmail: Teen Sensation, Microsoft Watch, Sept. 20, 2007
- Microsoft's Face in the Book, Microsoft Watch, July 16, 2007
- Why Google Succeeds, Part 2, Microsoft Watch, June 15, 2007
- Why Google Succeeds, Part 1, Microsoft Watch, June 15, 2007
- One Redmond Way | Razorfish, Microsoft Watch, May 21, 2007
- Why Microsoft Wrote aQuantive a Big Check, Microsoft Watch, May 18, 2007
- Top 10 List: Why Microsoft and Yahoo Couldn't Marry, Microsoft Watch, May 5, 2007
- Will Microsoft Yell Yahoo?, Microsoft Watch, May 4, 2007
- DoubleClick and Microsoft's Thrift Culture, Microsoft Watch, April 16, 2007
- Will Microsoft See Double(Click)?, Microsoft Watch, March 28, 2007
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Comments (8)
good analysis. Thx joe.
Posted by uhura | October 25, 2007 2:14 AM
"Johnson didn't say what I will: Microsoft really paid Facebook, again, for the right to offer advertising on the social networking service."
Perhaps, but its worth reminding ourselves that EVERYONE that participated in this round of funding... agreed on the valuation. But msft got the ad dealt to boot. Right? Someone point out the flaw in my logic.
Posted by uhura | October 25, 2007 2:48 AM
Looks like M$ got itself a good deal. Now they can try to make money with Facebook, or kill it (either unintentionally with its heavy-handedness or otherwise). Micro$oft's embrace is not without fatal risks.
Posted by Maddog | October 25, 2007 6:00 AM
The time for talk is over. There are people who talk and there are people who do and there are people who do nothing but talk and laugh.
As was noted on the RB VCSY board this morning, there are a whole lot of people posting on RB VCSY who have no financial stake in the stock. They spend an awful lot of time talking and laughing about something they don't know anything about. That alone should be a signal to others, but, others are easily lead and they end up laughing when others laugh.
I offere the following Yahoo VCSY board posts to demonstrate what I think is going to be the least understood jolt to the software world. I want the world to be able to see why they were not allowed in on the secret. That's why I'm posting here those posts and this one blurb from those posts I think will mean the most to folks who were prevented from learning about VCSY by those who did the most to lead the laughing.
"We (VCSY longs) have a list of people who laughed loudest. When the noobies get here and wonder out loud why nobody told them VCSY had what it has, we VCSY longs are going to simply post the list of usernames... usernames of the people who laughed loudest and longest; those people who did everything they possibly could to drown out the conversation about what was a very simple and transforming idea."
pd
http://
messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_V/threadview?m=tm&bn=33693&tid=763&mid=763&tof=1&frt=1
http://
messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_V/threadview?m=tm&bn=33693&tid=763&mid=764&tof=1&rt=2&frt=1&off=1
http://
messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_V/threadview?m=tm&bn=33693&tid=763&mid=765&tof=1&rt=2&frt=1&off=1
http://
messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_V/threadview?m=tm&bn=33693&tid=763&mid=772&tof=1&rt=2&frt=1&off=1
http://
messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_V/threadview?m=tm&bn=33693&tid=763&mid=773&tof=1&rt=2&frt=1&off=1
http://
messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_V/threadview?m=tm&bn=33693&tid=763&mid=773&tof=1&rt=2&frt=1&off=1
Posted by I-Man | October 25, 2007 12:56 PM
maddog, do you post at qna.live.com?
Posted by hotsprings | October 25, 2007 1:18 PM
Maddog Says:
"... Now they can try to make money with Facebook, or kill it (either unintentionally with its heavy-handedness or otherwise).
@Maddog:
This is how Microsoft will kill "Facebook" 'unintentionally'.
"Counting down the downfall of Facebook as they set to introduce major ad play"
"The countdown has started, lets see how long it takes for the user base to start moving to another place with no ads."
[...]
"But, who knows, maybe I am underestimating how much harassment a user can take. But, if you look what happened in traditional television where we all zapped away from commercials I think this effect will go faster when the ad reaches your personal domain (your mobile and your profile)."
Posted by n0neXn0ne | October 27, 2007 1:22 PM
"Facebook employees know what profiles you look at"
"Checking who's viewed a profile may be how Facebook found the tipster who violated their terms of service by sending Valleywag Steve Ballmer's profile. But were they violating their own terms?"
"Well, Facebook's privacy policy doesn't explicitly reserve or waive employees' right to check out your profile for any reason. Of course, the practice still reeks of skunkery -- it's one thing to check profiles in the course of business, but these people are looking up records for kicks. This is a company with $150 million in projected revenues this year and a gigantic ad deal with Microsoft, not a corner video store. The privacy of millions is at stake. Google clearly promises not to crawl through mail or search records with anything but a computer program, and even AOL apologized for releasing semi-anonymous search data and violating its privacy policy."
Posted by n0neXn0ne | October 27, 2007 11:05 PM
I would agree with the opinion in this article that Google maneuvered Microsoft into paying for the Facebook slice that will become a boat anchor for Microsoft's web reputation.
http://blogs.zdnet.com/storage/?p=223
November 1st, 2007
Did Google bluff Microsoft into over paying for Facebook?
Posted by Robin Harris @ 5:14 pm
It sure looks like it
Microsoft pays $240 million for a stake that values Facebook at an astounding 150x of revenue - $15 billion dollars.
A week later, Google announces Open Social, a competitive platform with partners including LinkedIn, Hi5, Friendster, Salesforce.com, Oracle, iLike, Flixster, RockYou, and Slide. That deal that took longer than a week to structure.
Plan A or Plan B?
Was Google ever serious about Facebook, or did they just want to see Microsoft invest more of their battered prestige in another closed platform?
Probably they didn't much care how it came out. Google could have paid the $240 million just as easily as Microsoft. Money wasn't the sticking point. Microsoft promised something that Google didn't. Microsoft must have promised to keep Facebook closed.
Bet it was fun to see how far a-desperate-for-coolness Microsoft would go to "beat" Google.
Is Facebook a platform or a launch platform?
Facebook has a lot of traction as a platform for software developers. Google's Open Social platform takes advantage of that. According to Marc Andreessen (@
Today's Facebook app developers just got very good news -- they will be able to take all of the work they did to . . . as many as 100 million users just via the initial Open Social partners, more than twice as many users as Facebook has today.
As an app developer, there's no real reason to choose between Facebook and Open Social. It's easy to do both. You've already put in most of the effort -- creating a new set of front-end HTML and Javascript pages is almost trivial, and that's all you need to do to have your app "port" to Open Social and work within Open Social containers like Ning, Orkut, Hi5, and LinkedIn.
It looks like Open Social is not simply drafting on Facebook's momentum, but actually looking to subsume it into the larger audience. Today, Facebook has the momentum. But as the Open Social community builds more developers will have to choose who to develop for first. It may take a year or two, but the momentum will shift.
The Storage Bits take
Facebook helps keep Microsoft in the Internet advertising game. But they've been out played by Google. Microsoft over payed for a sliver of Facebook and in a year Ballmer will look like he was caught short yet again.
Posted by I-Man | November 3, 2007 8:58 AM