Microsoft Wants A Piece Of Facebook?

29 Comments

[qi:010] How much is a 5 percent stake in Facebook worth? $300 million? $500 million? $750 million? It all depends on how desperate the buyer is and how well Mark Zuckerberg can play a game of corporate poker. Rational thinking long ago flew out the window when it comes to anything Facebook.

The Wall Street Journal, citing unnamed sources, is reporting that Facebook and Microsoft (MSFT) are in early talks about an investment that could value Facebook at upwards of $10 billion. Although the valuation is huge, the talks themselves shouldn’t come as a surprise, for Microsoft executives have long been enamored of the fast-growing social network based in Palo Alto, Calif.

If the Z-meister takes the cash, then in a sense he is getting an put call option from Microsoft, which prevents Facebook from embracing anyone else. Like Google (GOOG). It also ensures that Microsoft’s advertising business doesn’t go elsewhere…ever! The Journal says that fresh cash is needed to buy others and pay for infrastructure investments.

Of course, when you have little a monetization issue, like Facebook has (and refuses to talk about), it is time to get OPM: other people’s money!

29 Comments

Mansi

Microsoft is really trying to get back into the game, and if anyone could do this, its the giant himself..I’d be inclined to dismiss this as a rumour right now, but who knows!

btw, OM, my husband is your greatest fan, he reads your blog daily, just never leaves comments:) Kudos for doing a great job here!!

Financial Terms Auditing Dept.

I think you mean “call option”…

Nevertheless, the strength of any first refusal right will depend on the terms of the investment agreement and may not prevent Facebook from acting independently. Yahoo, after all, had an investment in Google that didn’t prevent Google from going public.

Ajay

Microsoft, Google, and Yahoo! are fighting for it all these days. Microsoft and Yahoo! will do anything they think will allow them to catch up with Google. A WSJ article this morning even said that Microsoft is using its backroom connections to get ad firms, Time Warner, and AT&T to not support the Google-Doubleclick deal. I found the maps on NewsVisual http://www.newsvisual.com/newsvisual/2007/09/microsoft-ties-.html that show the connections Microsoft may have used to pressure Time Warner and AT&T.

Anonymous

Could you explain what you mean by:

“If the Z-meister takes the cash, then in a sense he is getting a put option from Microsoft, which prevents Facebook from embracing anyone else”

How is Facebook getting a put option from Microsoft, and how does it prevent them from embracing anyone else?

Om Malik

Bryan

I am told Wallop is getting big in China, though doesn’t have much traction locally. Anyway i think this is going to be an interesting quarter and would love to watch Google’ response.

Bryan Menell

Microsoft already has an invesment in a social networking website. Does anybody remember Wallop? I guess if the one you invest in doesn’t do well, you can buy your way into one that is successful. That’s the great thing about free cash flow.

Jon Kelly

This might be a good moment for people to consider what that inventory is really worth. Unless MSFT has some novel way to get the CPMs to something reasonble, that’s an awful lot to pay for an insurance policy against further Google dominance.

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