Rumors are flying about Microsoft'sinterest in investing in a 5% stake in Facebook--a stake that would value the social networking upstart at some $10 billion dollars. Viacom and Yahoo have both made bids for the company, Google is reportedly interested (though co-founder Sergey Brin told me back in July that they weren't pursuing Facebook) and now Microsoft's offer is shaping up. They're all battling to bolster their ad platforms. And Microsoft, the laggard in the space, is trying to better compete with Google's ad behemoth.
Microsoft already has an exclusive deal with Facebook to deliver display ads. Investing in a stake would allow Microsoft to expand this deal beyond 2011. But perhaps more importantly, Microsoft and everyone else wants to hook Facebook's users (that crucial younger demographic) on their very own e-mail and search. And considering how much Microsoft's search lags Google's, it's not a bad idea.
But there may be a number of bad ideas in this potential bidding war for Facebook. For one, these companies shouldn't be counting on Facebook as an advertising panacea. Facebook users are actually less likely to click on ads than people doing Google searches. (Google search ads tend to be closely tied to search results, making them more appealing). And Facebook is likely going to use outside investment to fuel their own advertising platform to launch later this year. A platform to target ads based on user profiles, exactly the kind of competition Microsoft doesn't need.
But that being said there are certainly a number of comparisons to be made between Microsoft and Facebook. Facebook founder Mark Zuckerberg himself likes to point out that just like Bill Gates, he's also a Harvard dropout. And in the company's approach, Facebook often makes the point that it's building appealing software, not an advertising system. And then there's the fact that Microsoft is trying to emphasize the social element of its Xbox 360 Gaming system. A system that could use to be hooked up to Facebook.
All this hubbub about Microsoft's dealings was clearly sparked by Facebook, trying to start a bidding war. Microsoft never would have leaked that news yesterday--they were busy launching Halo and wanted all eyes focused on that.
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