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Thursday, October 25, 2007

(Update, -1,-2) Facebook is Sleeping with Microsoft

Microsoft clinches Facebook deal and the Windows people agreed to take a 1.6% stake in Facebook, valued at US$240 Million. Is it an outrageous sum of money for a social networking site? Why is Facebook and Microsoft a better fit? Why not just sell Facebook outright?

Facebook is "valued" at US$15 Billion dollars. And anyone who hears that right now asks, "what?" You can almost see the word "bubble" forming in their head. That isn't to say the value of social networking is on the rise. In fact, quiet recently, uses for social networking has found its way to the CIA, after they launched Facebook for spies, an experiment that will allow staff to better communicate but, it is more valuable than that.

The traffic for Facebook the site and as a brand is stratospheric right now. Its advertising model is good, so good that the offer to buy Facebook saw offers skyrocketing. The battle was seen as a face-off between Microsoft and Google. Google ready for its close-up having won the last round, with its acquisition of YouTube. According to EWeek:
The world's largest software maker was bidding against Web search leader Google Inc. for a stake in Facebook and the right to sell advertising for Facebook outside of the United States.

Microsoft said it would be the exclusive third-party advertising platform for Facebook which has more than 49 million Internet users.
The magic of Facebook--- one that differentiates itself from other social networking sites is its ability to deploy apps, which creates more active and interesting interactions with your friends online and those apps are the advertising moneymakers. It's phenomenal how Facebook is skyrocketing but everyone remembers myspace and other social networking sites, and asks, what happens when kids move on to something better?

The ability to deploy apps is the attention getting catch and the moneymaking engine. Thus, one can contend that the primary goal of Facebook is not sharing pictures or music--- though it does that. It is more like the online version of a lounge, more watering hole. It is about an online interaction experience with your friends and in that regard, Facebook isn't in line with Google's need to organize information but that isn't to say it isn't in line with Google's desire for more advertising, more page hits.

One can in fact argue that Facebook has more in common with Yahoo than with Google, with its focus more on the social, "general purpose community" aspect rather than the data mining, data distribution/organization that Google is great at. Facebook's moves is looking right now as Yahoo 2.0, sans the search engine.

Is Microsoft and Facebook a good fit? If it was an outright buy--- then Microsoft probably wouldn't be the best partner for Facebook, or anyone save perhaps Yahoo. Halo developer parts with Microsoft is a prime example that Microsoft isn't the best company to be acquiring something like Facebook, which is way left field from the Windows Maker's core competency as a software developer power house. The play to take a minority stake and advertising revenue is excellent and the PR value of course is topnotch.

If it was all about the money, one can say that an actual sell of the company at US$15 Billion would be in the best interest of Facebook, but that's not the play. Facebook wants to be the next Google. They want to compete with Google for that advertising money. In a world where Google is huge with no opposition in sight, since Yahoo is still finding itself and Baidu is still growing in China. While not directly competing nor hindering with Google's desire to organize the world's information, Facebook staying independent and sleeping with Microsoft is a good thing for everyone.

UPDATE: Google is staying friends with Facebook.

UPDATE-1: EWeek talks about why Facebook snubbed Google for Microsoft: it's all about the ads they say.

UPDATE-2: John C. Dvorak has a valid argument. He said that when you Do the Math, the whole Facebook deal doesn't make sense. Because:
  1. Microsoft paid too much--- US$240 M for a company that does US$150M or roughly US$300 per user, which is high, according to him since these are users who are in his words, "bloggers, duds, poor students and hangers-on".
  2. Google suckered Microsoft into taking this deal. He adds that Microsoft felt they needed to win one of these head-to-head competition just once.
  3. Social networking schemes come and go.
Ergo, the deal, John C. Dvorak says "doesn't make sense".