Technology, Culture, Commentary on the Internet Revolution

Microsoft Pays $240 Million for 1.6% of Facebook. Pathetic.

by Mike Abundo on October 25th, 2007

Ballmer eats his words on social networking.

The two companies said on Wednesday that Microsoft would invest $240 million for a 1.6 percent stake in Facebook. The investment values the three-year-old Facebook, which will bring in about $150 million in revenue this year, at $15 billion.

The deal ends two months of jockeying between three major Internet players for the right to invest in and forge close ties with Facebook.

As part of the deal, Microsoft will sell the banner ads appearing on Facebook outside of the United States, splitting the revenue with it. Last year, Microsoft struck a deal with Facebook to run banner ads on the site in the United States through 2011.

The astronomical valuation for Facebook is evidence that Microsoft executives believed they could not afford to lose out on the deal. Google appears to be building a dominant position in the race to serve advertisements online. Fearing it might lose control over the next generation of computer users, Microsoft has been trying to match and in some cases block Google’s plans, even if that effort is costly.

Given that Microsoft makes $51 billion in revenue annually, this paltry purchase is clearly a token defensive play. No disruptive innovation ever came from token defensive plays. Google has little to fear from another halfhearted attempt by Microsoft to buy a little cool. Given Microsoft’s pathetic track record with Web apps, don’t expect a Microsoft Office Facebook app to revolutionize the workplace. The most you’ll probably see from this deal is a few ads and some dumb Office/Live plugins.

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POSTED IN: Microsoft, Social Networking