Microsoft will pay $240M for a 1.6% stake in Facebook valuing the company at about $15 Billion. TechMeme has 151 news reports covering every possible aspect of the story. When is the last time you remember seeing 151 stories about Microsoft at the top of TechMeme?
Sending a message - This investment, in my view, is about setting a tone for the company, and sending a strong message to advertisers, publishers, employees, and investors, that Microsoft is serious about being a leader in on line media. The investment sends a message to every Microsoft employee that we will invest aggressively, try new things, and push the business into new areas. Don't underestimate the value of this message. It emboldens the entire company to get aggressive, stretch the boundaries, think outside the box. The message has ripple effects outside the company.
This isn't about valuation. Some will argue that Microsoft paid too much for a small 1.6% stake. Time will tell. But, that isn't really the point. Think about the strategic value of being the exclusive provider of advertising to a premium property like Facebook. Think about the possibilities for future cooperation on things like search, instant messaging, games, email, video, music, etc.
Strategic value - Investing to gain strategic advantage is an interesting and subtle art. There are lots of angles, future possibilities, and financial intricacies. Think about this. Which would you do; invest $1.5B for 10%, or $240M for 1.6%? Both value the target company at $15B, so you might ask what is the difference? Ask yourself this question "Do I get more strategic value or influence with $1.5B than with $240M?" My guess is that you get the same amount of influence, access to decisions and people, with $240M as you do with $1.5B. So, why not reduce your cash outlay and risk by only investing $240M?
Partnerships always start small, in areas of mutual interest. Once partners become comfortable working with each other new areas of cooperation will become obvious. How much is that worth? I don't think anyone knows now, but time will tell.
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Don - as m-softie you can't say much - understand. So here is my humble take (if it has already been stated - credit to those who did).
-By giving FB the 15 billion, MSFT has essentially given FB the money they need run their course for the next two years
-Kept other bidders at bay, by giving FB their dream valuation - (who wants to be in at such ridiculuous valuations)- I think this was the real genius in the deal!
-Less money than most expected - drop in the bucket for MSFT strategic vision
-MSFT get it ad deal and still paid less than Google is ponying up for MySpace ad deal (funny, Schmidt was babbling about how good the MySpace deal was for them - wonder what took so long - nothing - just feeling a little silly I suppose after MSFT did a better deal with FB!)
-Still cheaper than 1.6 billion GooTube - and no ad monetization yet for GOOG with plenty of billion dollar litigation lining up)
-MSFT gets to work with a real audience - the ones that come out and use MSFT solutons after college - not the MySpace kind looking for the next free sample).
In the end - MSFT kept the ad deal and deepenened its relationship with FB - if it works out MSFT cashes out - thats gravy. Sure some of the fine print will remain hidden till the FB S-1 filings (the anti-dilutive type!). MSFT maintanined a status quo - NO REAL WINNERS OR LOOSER HERE.
Posted by: G | October 25, 2007 at 12:11 PM
The crazy part was most of those 151 posts on Techmeme probably happened within an hour of the news being announced. Personally, I find myself wondering whether jumping on the news bandwagon sometimes is worth it. Then again, it's hard to keep away from a good story.
Posted by: Mark Evans | October 25, 2007 at 01:28 PM