It’s been rumored for several weeks, so may be anticlimactic, but AP is reporting that Microsoft is putting $240 million into Facebook for a 1.6 percent stake. (Local papers have versions on Web sites as well.)
There was a time when this kind of thing would have been suicidal for a young tech company. Microsoft would come on board, throw its weight around, take over projects, look at the code…then develop its own competing software. So times have really changed. Now you can view it as Microsoft simply trying to get in on an action it has no hope of branding on its own, as well as a jamming in a wedge against Google. You could certainly view this deal as a turning point in the Evil Empire stigma of Microsoft.
“Culminating weeks of negotiations, the investment announced Wednesday values Palo Alto-based Facebook at $15 billion — a stunning figure for an online hangout started in a Harvard University dorm room less than four years ago.” Well, it does and it doesn’t. No sound economic valuation based on P/E or any other existing index (revs of $100M to $150M, give me a break) would put Facebook anywhere near that. This is all on the come, an act of faith that social networking technology won’t commoditize or be usurped by some new technology. But what both Microsoft and Facebook want to do in cases like this is pump the appearance of value, so why not go along with the hype?
Don’t believe the stenographic line that Microsoft “beat out” Google, however. Google would not have let Facebook slip if it really wanted it. Similarly, though, suggestions that Google let Facebook slip because it is developing its own social-networking site are probably off base. My view is that Google has little incentive to do a social-networking site, because that would cannibalize its own advertising market. Besides, with Blogger, YouTube, Google Pages and other powerful pieces, the Google sum is greater than any SN’s parts.