Microsoft buys 1.6% stake in Facebook

Microsoft Corporation has acquired a minority stake in Facebook, the social networking website, by signing a deal to buy 1.6% of Facebook for $240 million.

The deal is a landmark one in the sense that it puts a whopping $15 billion valuation on the social networking website business. It also highlights software giant Microsoft’s strong rivalry with Google and Yahoo over the booming sector of online advertising.

Microsoft Corporation, based in Richmond, Virginia, and Facebook, based in Palo Alto, California, the United States, jointly announced on October 24,
2007, that Microsoft would pay $240 million for a 1.6% stake in the 3-year-old company.

Facebook has already entered in a big way into the turf of such internet giants as Google, Yahoo, AOL and Microsoft’s own MSN.

According to industry observers, Microsoft was willing to pay a steep premium to prevent Facebook from striking a similar agreement Google or other suitors.

Analysts say that, while the Microsoft-Facebook deal does not put a formal value on the privately held Facebook, Microsoft’s investment would suggest
that Facebook is worth $15 billion – which is twice the market capitalisation of chip-maker Advanced Micro Devices (AMD).

According to media reports, Microsoft executives said they believed that the “global partnership will pay off in the long run by enabling it to leverage its advertising business across a social network that has nearly 50 million registered users and is growing rapidly.”

One executive of Microsoft said it was possible that Facebook would eventually have 300 million users globally.

Some analysts have portrayed Facebook as the new operating system that exists on the Web instead of hard drives.

Reports quoted executives for both Microsoft and Facebook as saying that the deal would enable advertisers to target consumers better.

The new deal is in fact an expansion on an agreement reached in August 2006 in which Microsoft Corporation secured the US rights to sell banner advertisements and sponsored links on Facebook. At that time, Facebook had 9 million registered users.

Owen Van Natta, vice-president of operations of Facebook, said in a statement that, while pursuing new advertisement revenue, Facebook would be careful not to alienate users. He added: “We want to make sure that users do not feel that we violated their trust in any way.”