Microsoft Invests $240 Million in Facebook

By Sam Diaz and Catherine Rampell
Washington Post Staff Writers
Thursday, October 25, 2007

Microsoft yesterday announced a $240 million deal with Facebook, giving the technology giant a minority stake in the popular social networking site and the exclusive rights to sell worldwide advertisements that target Facebook's 50 million members.

Facebook, which is second to MySpace among social networking sites, in recent months has become a hot property as a magnet for Internet advertisers. Google reportedly sought a similar deal with Facebook.

In 3 1/2 years, Facebook -- a site that allows its users to exchange messages, share photos and showcase their network of online friends -- has won an audience big enough to bring in $125 million in ad revenue, the estimate for this year, according to eMarketer, a market research firm.

The companies did not disclose details but said the deal values Facebook at $15 billion.

Facebook said it would use the Microsoft investment to expand its workforce and grow internationally.

The convergence of these companies demonstrates Microsoft has evolved from its legacy business of selling software and how much it needs to connect with a new generation of Internet-based computer users. While both Microsoft and Facebook were started by Harvard dropouts, Facebook's 23-year-old co-founder and chief executive, Mark Zuckerberg, was born nearly a decade after Bill Gates set up shop.

For Microsoft, agreeing to a deal with a young company like Facebook that has the potential for anchoring new advertising revenue was critical. Microsoft had ceded ground to Google, which has made a bid to buy online ad giant DoubleClick, and last year invested $1.65 billion to buy the video Web site YouTube.

"Microsoft had lost a number of these," said Andrew Frank, research vice president for Gartner. "I think they were definitely feeling like they had to win this one."

Google declined to comment on the Microsoft deal. Facebook declined to comment on Google's possible interest.

Microsoft and Facebook already have a deal to distribute banner ads to Facebook members in the United States. Yesterday's agreement lets Microsoft distribute ads to Facebook members globally.

The investment comes just after Microsoft chief executive Steve Ballmer publicly played down the significance of social-networking sites.

"I think these things are going to have some legs, and yet there's a faddishness, a faddish nature about anything that basically appeals to younger people," Ballmer told England's Times Online in an Oct. 2 article. "There can't be any more deep technology in Facebook than what dozens of people could write in a couple of years. That's for sure."

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