Microsoft takes $240m stake in Facebook

by Staff, Brand Republic 25-Oct-07, 09:25

NEW YORK - Microsoft has invested $240m (£117m) in Facebook, putting a value of $15bn on the social networking site, which has so far failed to make a profit, and agreed a key advertising deal.

Microsoft's investment gives it a 1.6% stake in Facebook, which has attracted interest from a range of internet companies including Yahoo.

The agreement cements Microsoft's exclusive relationship with Facebook to serve ads on its site and keeps out competitors, including Google.

Facebook has been working with Microsoft for a year and has decided to expand its partnership to a global relationship.

The software group already has a deal with Facebook in the US which lasts until 2011 and gives it exclusive rights to provide banner ads. The new deal will make Microsoft the site's exclusive third-party advertising platform partner and it will begin to sell advertising for Facebook internationally, as well as in the US.

It is not clear whether the deal will include search advertising as well as display advertising. If not it leaves the way open for Google and other competitors to seal a separate deal to sell search advertising.

Facebook is growing faster than the top social networking site MySpace and Kevin Johnson, president of Microsoft's platform and services division, said that the growth opportunities justify Microsoft's investment in the site.

Facebook has almost 50m users and its membership grew more than 6% in September, compared with MySpace growth of 1% to 107m users, according to research company ComScore.

With an average of 200,000 new users registering every day, Facebook continues to be one of the most trafficked sites on the internet.

Owen Van Natta, chief revenue officer at Facebook, said: "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."

Johnson said: "The opportunity to further collaborate as advertising partners is a big reason we have decided to take an equity stake, and is a strong statement of our confidence in the long-term economics of this partnership."

Comments

Matthew Finch - 25/10/2007

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.

David Henry McGuire - 25/10/2007

Matthew has a good point, but Microsoft have looked at the research that could be collected from facebook, understanding consumers directly aswell as advertising what they assume the customers will need. Sometimes you have to give a little to gain alot. Microsoft are looking for oppurtunities to squash their competition. Its just like the monopoly game, buy everything on the board before the other players do. ;)