The long-rumored hook up has been confirmed. Microsoft is taking a stake in social-networking site Facebook. It beat out rival Google, which was reportedly in the running, for the exclusive global rights to sell third-party advertising on Facebook. Microsoft landed a deal to sell banner advertising in the U.S. on Facebook in August 2006. Expanding the deal internationally is important because 60 percent of the site's nearly 50 million registered users are outside the U.S.
Microsoft is investing $240 million in Facebook, about 1.6 percent stake at a stated valuation of an eye-popping $15 billion. Facebook was started in February 2004 by now 23-year-old Mark Zuckerberg.
Owen Van Natta, Facebook's vice president of operations and chief revenue officer, and Kevin Johnson, Microsoft's platforms and services division president, shared more details of the deal with reporters on a conference call.
Here are some highlights:
-- Johnson said, "I think this deal represents a major advertising syndication win for Microsoft" and "an enormous vote of confidence from our largest advertising partner."
-- Asked about the $15 billion valuation for Facebook suggested by the announcement, Johnson pointed to the nearly 50 million active users and the rate at which the site is adding users (Van Natta said later that it's doubling its user base every six months). If they get to 200 million or 300 million users fairly quickly, combined with "a modest average revenue-per-user, per year, and you can very quickly get to this level of valuation," Johnson said.
-- The companies declined to name or confirm the existence of other investors for the funding round. Van Natta also declined to discuss how the equity investment may affect Facebook going public.
-- Johnson said "there's a lot more we're going to be doing together," but both he and Van Natta were vague or non-responsive when asked about technical collaboration; integration of Facebook into Microsoft properties such as Windows Live or MSN; whether or not the agreement includes search advertising ( as opposed to just banner advertising); whether there's any guaranteed revenue to Microsoft as part of the deal.
-- Several reporters and analysts asked Johnson how well the existing Facebook advertising deal has worked out for Microsoft. Some referred to recent comments by Microsoft CEO Steve Ballmer suggesting that the deal has yet to become a huge source of revenue. "We see continued improvement and progress with the overall monetization of the Facebook inventory," Johnson said.
-- Neither executive provided much background on how the deal was done, including any background on other bidders. In fact, neither mentioned Google by name.