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Thursday, October 25, 2007
Microsoft to Buy Facebook Stake For $240 Million

Microsoft beat out Google on Wednesday in a battle to invest in socializing Web site Facebook, agreeing to pay $240 million for a 1.6 percent stake in the Web phenomenon.

Microsoft also clinched exclusive rights to sell ads on Facebook outside of the United States as part of the investment that valued Facebook at $15 billion -- on par with the market capitalizations of retailer Gap Inc and hotel chain Marriott International Inc.

Analysts said Microsoft paid a steep price on a bet that the three-year-old company would be able to transform itself into a hub for all sorts of Web activity.

"The only way this works is if Facebook becomes sort of the users' operating system on the Internet -- everyone logs into Facebook every day to get in contact with their friends and use a multitude of future applications that will be developed for it," said Morningstar analyst Toan Tran.

Facebook, a social network that lets friends share information, allows outside developers to create games and other applications for its site.

The popularity and depth of knowledge Facebook has about its users makes it valuable to companies like Microsoft and Google which want to sell advertising targeted to individual preferences.

Founded in 2004, Facebook said it registers 250,000 new users a day, 60 percent of whom come from outside the United States.

Kevin Johnson, president of Microsoft's platform and services division, said the $15 billion price tag for Facebook is based on Microsoft's belief that the site could eventually reach 300 million users, who can be targeted for advertising. It has nearly 50 million today.

Microsoft has stepped up efforts to be a player in the $40 billion market for online advertising, which the company expects to double in size within three years. It paid $6 billion to acquire digital advertising firm aQuantive in August.

Under the Facebook deal, Microsoft would be the exclusive third-party advertising platform for Facebook extending a previous deal for Microsoft to sell banner advertising next to Facebook member profiles in the U.S. until 2011.

Microsoft's "rival" Google has alrady a multiyear deal with MySpace , the largest social network, to provide search and advertising alongside MySpace's 110 million user profiles.

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