Microsoft and Facebook up a tree

K.I.S.S.I.N.G. First comes love, then comes… ok, that’s it, just a little love.

Microsoft said they weren’t playing and lo and behold, 1.6% stake in Facebook later, they prove it. But it wasn’t an acquisition, it isn’t even really that massive a stake and despite giving a completely out of this world ridiculous valuation of $15 billion they didn’t give up that much money, just $240 million. Ballmer finds that money in his couch every spring cleaning. I was going to write something longer, but Joe Duck, kinda hit a lot of what I was going to say. But I still have some more words to write.

It’s easy to make fun of Microsoft for agreeing to that ridiculous 100x expected revenues valuation, and if they had taken a bigger stake or even acquired Facebook, it’d be one of the dumbest moves evar. But they didn’t, they just gave Zuckerberg a little of their change. Sure it doesn’t actually get them much - 1.6% of a private company prolly doesn’t get you that much influence. But, it probably keeps Google and Yahoo out of Facebook’s pants for awhile, which Microsoft needed to do - since it was getting to be perceived that Google could pretty much do whatever it wanted and Microsoft couldn’t do anything about it.

I’m sure, even though they deny that the investment has anything to do with the advertising deal they’ve struck with Microsoft, it sure as hell didn’t hurt. It would have been much worse to have had the ad deal swiped by Google. With Microsoft embarking on their silly 20 startups a year quota they need to get a little credit that they’re able to make something happen and not have Google walk around all over them. Who wants to get bought by the big wuss on the block? Ok, I do, but still, you know what I mean. They need to be perceived as a good, competitive environment for startups to want to work there, otherwise they’ll have to pay a premium for their acquisitions and they’ll hemorrhage the talent once the payout happens.

I think that despite the bubblicious valuation this stamps on Facebook, it was a pretty smart move by Microsoft. It doesn’t really get them too much, but it does get them something and it cost them very, very little. I’m curious, though, what effect this will have on Facebook for future funding. If they try and raise more money, but even a little skepticism arises, it will be really, really hard for them to convince investors that they’re worth $15 billion. Significantly lowering their valuation will make them look like the next Skype. Good times.

Oct 25th, 2007 · Comments RSS · · · · · Tags: m&a · microsoft · social networks · web2.0