Microsoft added ‘Facebook’ to their interests

It’s not often Microsoft gets one over on Google these days, so Bill Gates and co. will have a smile on their faces this morning after the US software giant beat off competition from its biggest rival to land a minority stake in social networking phenomenon Facebook.

by
Last Updated: 31 Aug 2010

Of course, Bill’s joy will be nothing compared to that of Mark Zuckerberg, Facebook’s 23-year-old founder and chief executive. Microsoft (which already had a limited advertising relationship with the site) is paying $240m for a 1.6% stake, which means Zuckerberg’s baby is now valued at an eye-watering $15bn. Turning down Yahoo’s $1bn offer for the whole company last year was clearly a wise move.

This is all very well – but are we not seeing history repeat itself? Less than a decade after the internet bubble, we’re again seeing an established player paying an inordinate sum for a trendy website that makes no money. Facebook has been open to the public for just 13 months; its profits last year were a relatively measly $30m, so today’s valuation represents a 500m times multiple. It all sounds a bit familiar…

So what exactly does Microsoft think it’s getting for this hefty sum? Although Facebook is completely free, it has already accumulated nearly 50m users worldwide. Many of these people use the site as their homepage, and now that Facebook has allowed third-party developers to write applications for it, it could become their main internet portal. Microsoft will now get exclusive rights to sell advertising to all these people.

Nonetheless, it’s still an enormous price tag. Rupert Murdoch’s News Corporation paid $580m for MySpace in 2005, which has a similar level of traffic. And the danger is always that Facebook will turn out to be a passing fad – perhaps its fans will revolt against being deluged with ads, or even against the association with Microsoft, which appears to be seen as the root of all evil by many techies.

Google might not be smiling this morning, but there’s a good chance it might still have the last laugh.

Find this article useful?

Get more great articles like this in your inbox every lunchtime

Upcoming Events

Subscribe

Get your essential reading delivered. Subscribe to Management Today