Microsoft buys Equity Stake in Facebook

- October 26, 2007

Microsoft has won the battle with Google and Yahoo to invest in Facebook. The two companies announced on October 24th that Microsoft will invest $240 million for a 1.6% equity stake in Facebook, a price that values the social networking site at $15 billion. Last year, Microsoft started supplying banner ads for Facebook in the United States through 2011. The new deal secures Microsoft as Facebook’s primary advertising partner and expands its reach to Facebook’s international users, while splitting the revenue.

Marketers are expected to spend about $1.2 billion worldwide on social-networking this year and this number could grow to $3.6 billion by 2011. With 50 million active users, Facebook remains second behind MySpace with over 110 million active users, but Facebook’s audience has been growing at a far more rapid clip during the past year. This is in part due to Facebook’s technology, which has enabled it to distinguish itself from rival social networks like MySpace. In May of this year, it began inviting other companies and outside developers to create tools for the site and share in advertising revenues. Thousands of applications have been developed since, which enable users to personalize pages in various ways. It is also believed that the company is building an operating system that exists on the web instead of on hard drives or personal computers.

Social Networking sites allow internet users to connect with friends and share information such as photos, videos and music. Microsoft plans to tap information on Facebook’s users and will have the ability to offer more targeted ads. Social networking provides the advertising world with something beyond basic demographics. It shows how people interact. Facebook is favored by some over MySpace because it is based on who you really are and who your friends really are. Myspace is not based on authentic identities. Marketers want to reach the real you and not the “fantasy you” that lives onMySpace and uses a photo of a model.

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