• The Wall Street Journal, Friday, October 26, 2007 11:03 AM

Microsoft's hard-fought victory for a 1.6% stake in Facebook has been laughed at by some critics, but not only is $240 million (the amount the software giant paid for the stake) a mere pittance for a company the size of Microsoft, but the risk reward for investing in an upstart with Facebook's potential is very high.

The opportunity is highly targeted online advertising. Facebook is unique to other content providers because it collects very detailed information about its users: their hobbies, favorite books, movies, music, what schools they went to, etc., in addition to basic age, gender and location information. Perhaps most important, social networks link together people and their friends, dividing them into groups centered around common interests or affiliations. The social networking has become so powerful that some industry watchers believe sites like Facebook could eventually become "the central window consumers use to access the Web."

Given that possibility, Microsoft execs were more than happy to say, "We're pleased with the economics of this deal." It has purchased a 1.6% stake in Facebook along with the right to sell remnant inventory across international versions of its service. But what kind of information-sharing does it allow? And what role, if any, does the new deal play in Facebook's forthcoming release of a targeted social advertising system?

Read the whole story at The Wall Street Journal »