Wednesday, 24 October 2007

Microsoft stake values Facebook at 'irrelevant' $15 billion

It has just been announced that Microsoft is to take a 1.6% stake (much lower than the 5-10% stake originally talked about) in Facebook for $240m therefore valuing Facebook at $15billion. In return Microsoft gets the right to sell Facebook advertising outside the US to add to its existing deal within the US.

It was obviously important for Microsoft to get this deal and therefore stop Google getting into Facebook. The WSJ article on the background to this deal Microsoft Bets on Facebook Stake and Web Ad Boom is worth a read.

Is Facebook worth $15billion?

If you applied 'normal' valuation metrics, that's 100x Facebook's estimated annual revenues of $150m or 500x 2007 annual earnings of $30m (apparently Facebook is already profitable...) But if Facebook does become the social networking site of choice and users triple in the next year or two (quite possible) then the valuation starts to look quite reasonable.

The other way of looking at the Microsoft stake is as a 'cost of sale' or 'soft kickback' as some call it. Paying $240m (chicken feed to Microsoft) to get a contract to be the exclusive supplier of Facebook's advertising might look very reasonable. Particularly if you put it in the context of advertising being of the utmost strategic importance to Microsoft and an area where they are extremely vulnerable to the domination of Google.

All this side-steps whether Microsoft will get any influence over how Facebook develops. As I have said many times, Facebook is as close as it gets right now to a decent social networking site but it still has many deficiencies - see my earlier post last night. Microsoft is a mature company which just might put those deficiencies right. If it did maybe, just maybe, it could lead to Microsoft owning MyTop. Just as Microsoft owned the Desktop. Just as Google owns the WebTop. That is a mighty prize.

Faceberry Mashes up Blackberry and Facebook - Headline from Information Week

In a way, this links to the other bit of Facebook news last night. Research in Motion (RIM has launched a Facebook app for the Blackberry. Facebook users can now use their Blackberry to receive messages and friends updates automatically - just like they do for their email accounts. They can do loads of other things, like take photos on their Blackberry and automatically upload them to their Facebook profile.

Mike Lazaridis (Pres. and CEO at RIM) said "Facebook is one of the fastest growing web destinations amongst Blackberry users and has become an important element in the evolving fabric of personal communications". Certainly I often use my Blackberry to access my Facebook account - even though it is a bit clumsy right now. Blackberries are predominately business tools right now - so this statement reinforces what I have been saying about the crucial crossover between social and business networking and the need to have one 'network' which might serve the needs of both. (I know this is controversial - see earlier entries - but "I haven't got where I am today by people agreeing with me")

Microsoft and RIM both have their roots in 'corporates'. I think the twin announcements from these companies last night, re: Facebook, gives further evidence that Facebook has reached a tipping point in terms of its acceptablity within the mainstream, particularly business, environment.

No comments: