Did Microsoft make a good move investing in Facebook? The answer is definitely yes.
The $240 million price Microsoft paid for a 1.6 percent stake in Facebook values the 3.5 year old company at $15 billion.
This is a small amount of money for Microsoft and gives the Redmond-based company access to Facebook’s 35 million registered users. According to Quantcast the social networking site has 25 million unique visitors per month. This is a staggering number and shows that more and more people are using Facebook as their Internet launch point. In a way this site is the new AOL and Microsoft could now have some very premium real estate to run ads on.
So let’s explore why this deal makes sense for Microsoft. The company has a small ad network meaning relatively few advertisers and publishers compared to Google. I don’t have exact figures but these facts are certainly undisputed by anyone familiar with the matter.
Microsoft is doing everything it can to increase the size of this network relative to Google but this is almost impossible to do.
The only logical way to rapidly accelerate the size of your advertising network is to have oceanfront property that advertisers stand in line to access.
In short this deal could be a fantastic way for Microsoft to get access to the premium ad inventory of tomorrow.
Is their a downside to this deal and more involvement between these two companies? Yes. We all know that social networking users are fickle and members might switch to another social networking company if Facebook overdoes it with ads.
The company has to be very careful as it rolls out its revenue generating strategy.
For Facebook, this deal means they have access to virtually unlimited capital and resources. Furthermore, Facebook becomes the “cool” internet poster child at Microsoft. There cannot be a more enviable position for the company to be in.
Disclosure: The author is a shareholder in Microsoft and Google