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October 25 2007
Microsoft's "non-acquisition" of Facebook sets hearts aflutter...
... but where's the story? Old media (are we allowed to say that of a 30-year old company?) shimmies up to the shiniest of new media - but the handbag they're dancing around says "ad revenues".
So... Microsoft pays $240m for a 1.6% share of Facebook, thereby putting a value of some $15bn dollars upon a service that's about 3 years old and has yet to generate a penny's profit.
Has Microsoft caught a touch of "The Murdochs" and gone all 'myspace' in a belated sprint to cover themselves in some 'social media pixy dust'?
However, the deal seems to be more about advertising than anything else. With 50 million users, a growth rate that's eclipsing MySpace (what's that - Ed) and an average time of 3.5 hours/month spent on the site, the real interest in this deal is that Microsoft extends its advertising monopoly on Facebook from the US to the 'rest of the world'. The deal as we understand it is that Microsoft will have the exclusive rights to sell ads into the right hand banner and ad slots, splitting the revenues with Facebook.
The $240 million therefore is a straightforward 'payment for exclusivity' - a downpayment on the profits expected. The share holding is rather a side show and the valuation therefore verging upon accidental (unless there's some people waiting in the wings with 14 and three-quarters billion dollars for the remaining 98.4% of the company.
Why should retailers care? In a word - openness.
The deal with Microsoft now open Facebook more readily for advertising. Facebook is a curious blend of tech/nerd/geek and their mums, families and friends - in short, FB is starting to look like an attractive marketing demographic. Finally, FB has opened up its platform to developers who are creating small, light, fun, useful and increasingly lucrative mini-applications... Facebook is the current "oasis" of the web that's attracting the big game to it.
Microsoft's money is commercial, hard-nosed, but also an 'homage' to the new kid on the block that's getting all of the eyeballs.
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