Microsoft wins the hand of Facebook

By Josh Quittner

Microsoft (MSFT) beat out Google (GOOG) today and won the hand of the most coveted bride in Silicon Valley—the ultra-hot social network Facebook. The software goliath agreed to pay $240 million for a minority stake in the company that would put its total value at $15 billion.

“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,” Kevin Johnson, president of Microsoft’s Platforms & Services division told the Wall Street Journal, before a press conference that was to begin at 2 p.m. PST.

Microsoft’s investment guarantees the software company’s exclusive right to sell Facebook’s international advertising. According to the Facebook press release, Microsoft is now the “exclusive third-party advertising platform partner for Facebook, and will begin to sell advertising for Facebook internationally in addition to the United States.” Nearly 60% of Facebook users connect outside the U.S. “We’re very pleased with the scope and depth of our partnership,” Johnson said during the call with reporters. Johnson noted that the projected market for online advertising was $40 billion. “It’s a big industry,” he said. “The equity stake we’re taking is a strong statement of confidence about this partnership.”

“Just sit back and watch how this partnership develops,” he added. “There’s a lot we’re going to do together.”

At this valuation, each of Facebook’s 50 million users is worth $306.12.

For the past few weeks, Silicon Valley chatter has centered on who Facebook—the current “it” company—would tap as its partner. Google and Yahoo had been rumored to be among the top suitors. Facebook has been doubling its user base every six months. Owen Van Natta, Facebook’s vp of operations and chief revenue officer, declined to name any of the other companies who tried to partner with his company, saying only that “we were very fortunate to have a lot of folks who were interested in partnering on advertising.”

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Filed under Facebook, Google, microsoft, social networks

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Digg

Facebook

“Average Costs for Advertising … Online – $0.60 pay-per-click ”
-www.iesbdc.org/resources/Major%20Media%20Types.doc

So when you do the math that equates 510.2 ad clicks per user.

Are any of you anywhere close to 510.2 ad clicks within facebook?

For reference, if you clicked on just one add a week…

… It would take you ten years, seven months, and two weeks to reach 510.2 ad-clicks.

Sure, there are lots of assumptions in this. Many analysts predict that the number of users will increase over time. Yes but overtime, many of these users will become inactive. We all know people who have drifted away from facebook after school. Also, some of the hard-core hyper active users becoming disenchanted with the different demographics coming into facebook. Also many of these new users will be in a different demographic and have different use rates then college students.

Also in my example, I said the average user clicked on an ad once a week. I believe this is overly conservative. I’ve maybe clicked on four ads in the ten months of this year (and even that I think is high). If average usage is that low (0.4 months per year) ad-years per user increases to 106 years.

So, I still don’t see the economics in facebook, let alone $15 billion in economic value. Moral of the story, enjoy all the technology being released on facebook; but if you’re offered stock in facebook take a pass.

Posted By Tom, Minneapolis, MN : October 24, 2007 7:21 pm

Sexy startups seem to be loving Microsoft lately. First Digg, now Facebook. Wonder if the whole Orkut debacle helped inform Facebook’s decision at all, given its had its own inappropriate content issues of late.

Posted By Chris Winfield, CEO of 10e20, New York, NY : October 24, 2007 5:50 pm

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