Microsoft Deal Values Facebook At $15 Billion

by Gavin O'Malley, Oct 25, 2007, 6:00 AM

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Microsoft on Wednesday said it is investing $240 million for a 1.6% stake in Facebook--a deal that values the hot social network at a staggering $15 billion. Beating out Google, Microsoft also won exclusive global rights to sell third-party banner ads on Facebook.

Microsoft has had an agreement to sell ads on Facebook in the U.S. since August of last year. Expanding the deal internationally was seen as critical because 60% of Facebook's nearly 50 million registered users are abroad.

Microsoft believes that user base is on track to exceed 200 million and eventually 300 million members, said Kevin Johnson, president of Microsoft's platforms and services division, during a conference call Wednesday.

On the call, Johnson downplayed what one analyst called the "faddishness" of Facebook. "Figured with [Facebook's] monetization opportunities," said Johnson, "you could very quickly get to the valuation" of $15 billion.

Analysts agreed that whatever Facebook's prospects, social networking can no longer be considered a fad. "These are seasoned companies making well-thought-out investments," said Gartner analyst Andrew Frank of the deal.

Johnson said he was pleased with Microsoft's ability to monetize Facebook's network thus far, but that there are "many initiatives underway to drive that higher." Johnson did not provide details regarding these initiatives.

Owen Van Natta, Facebook's vice president of operations and chief revenue officer, did allude to Microsoft's recent acquisition of aQuantive, saying the deal was "a deep strategic move for them."

Beyond mere ad-serving opportunities, Johnson said the partnership with Facebook was largely strategic. "You can sit back and watch how this partnership is going to develop," he told one analyst.

To align further with Facebook, Microsoft reportedly faced intense competition from Google, which had previously bested Microsoft in bidding wars involving AOL and DoubleClick.

Even with this latest win, however, Microsoft still faces an uphill battle against Google in the fight for online ad dollars. In its fiscal year ending in June, Microsoft's online ad revenue rose 21% to $1.84 billion. During the same period, Google's ad revenue totaled $13.3 billion.

Van Natta said the investment would be used to fund further "innovation and growth." Van Natta pointed to a high demand for more Web developers, in particular, and estimated that Facebook would have more than 700 employees by next year.

This year, Facebook is reportedly expecting a profit of $30 million on revenue of $150 million.

While MySpace remains the top social network, Facebook has grown much faster over the past year. Facebook attracted 30.6 million U.S. visitors during September, compared with 68.4 million at MySpace.

Microsoft's social networking offering, "Windows Live Spaces," attracted an audience of 9.8 million, according to comScore.

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