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Thursday, October 25, 2007

Microsoft Wins One in the War Against Google

Microsoft just announced that it would invest $240 million for a 1.6 percent stake in Facebook. The social networking site is now valued at $15 billion.

As part of the deal, Microsoft will start selling ads for Facebook worldwide. Last year, it began to sell ads in the United States. The statement did not discuss any collaboration other than advertising. Nor did it discuss the length of the advertising deal. The previous deal for the United States only lasts until 2011.

At one point, there was speculation that Facebook would get $500 million. By investing $240 million, Microsoft is not really going to have any control over Facebook or even any better chance than anyone else to acquire it if its backers decide to sell. It validates Facebook’s astounding sense of its own worth, but Microsoft isn’t risking as much if that value should drop.

But the benefit to Microsoft, in addition to more ad inventory to sell, is that Facebook may have a better chance to cause trouble for Google. Let’s decode the press release quote by Owen Van Natta, Facebook’s president:

We think this expanded relationship will allow Facebook to continue to innovate and grow as a technology leader and major player in social computing, as well as bring relevant advertising to the more than 49 million active users of Facebook.

He’s saying that the money will let Facebook hire hundreds of engineers and buy thousands of servers. And he defines the company’s business as “social computing.” That means Facebook wants to build a serious technology company using its close relationship with users, which challenges Google.

And to Microsoft, the enemy of its enemy becomes its friend — despite the lofty valuation.

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