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In a long-anticipated deal, Microsoft on Wednesday beat out Google to invest $240 million into Facebook for its next round of financing.
The move will enable Microsoft to take a 1.6% minority stake in the social networking platform, which is valued at $15 billion, and to be the exclusive third-party partner to sell ads for the site in the U.S. and internationally.
Facebook has nearly 50 million active users.
Reports earlier Wednesday indicated that Google might beat out Microsoft in the highly publicized bidding war. In the end, though, Facebook decided to go with Microsoft in an expansion of its relationship with the software giant.
“This a strong vote of confidence that the ad platform will get stronger,” Kevin Johnson, president of the platforms and services division at Microsoft, said in a conference call with re-porters. “This is a strong vote of confidence in the innovation that Facebook is doing in social networking.”
In August 2006, Microsoft was named the exclusive partner to deliver banner ads on Facebook. The deal was extended this year to 2011.
Johnson described the expanded deal as a “win-win-win” situation. He said the partnership will increase Microsoft’s ad inventory, make Facebook more attractive to advertisers and provide a better user experience for the site.
“It’s consistent with our focus on innovation and growth,” said Owen Van Natta, vp operations and chief revenue officer at Facebook. “We’re focused on creating the best user experience, and this helps us to deliver on that.”
A main goal of the ad partnership, Johnson stressed, was to deliver “highly relevant targeted ads.”
When asked about the $15 billion valuation and the fact that Microsoft CEO Steve Ballmer recently described social networking as “faddish,” Johnson speculated that Facebook could grow to 200 million or 300 million users. He said that when you combine those numbers with monetization opportunities in an online ad market — which he predicted would grow to $80 billion in a couple of years — “you can very quickly get to this level of valuation.”
With the $240 million in equity, Van Natta said Facebook will continue to expand its employee base, reaching more than 700 workers by the end of next year. He also said that the money would go toward growing Facebook’s technology infrastructure and continued innovations.
The deal will allow for an expansion of third-party applications on the site as well, Van Natta said. Facebook recently opened up the site for developers to create applications, and Van Natta said the deal would allow those developers to work with Microsoft’s technology.
Neither Johnson nor Van Natta would discuss the terms of the deal beyond the ad partnership. They said the deal does not include Web search, but they declined to answer questions about whether the partnership will extend to other aspects of the Microsoft business.
“Both parties have decided there are certain elements of the deal that we won’t disclose,” Johnson said. “Both our companies have an alignment around innovation and technology. There’s a lot more we’re going to be doing together.”
Van Natta also evaded a question about what role Google played in the negotiations. He said that besides Microsoft, “a lot of folks” were interested in partnering with Facebook in this type of deal, but he didn’t mention names.
At Google Analyst Day on Wednesday, executives from the search giant also declined comment on the negotiations with Facebook.
Van Natta also would not comment on speculation that Facebook would become an IPO, and he wouldn’t say whether the company would receive financing from others along with the Microsoft investment.
Facebook was founded in 2004 by Harvard student Mark Zuckerberg as a social networking platform for students. In September 2006, the site expanded to let anyone sign up, spurring rapid growth. It has emerged as a rival to MySpace for social networking supremacy in the U.S. and, by some metrics, has passed the News Corp.-owned site in popularity in the U.K.
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