Tag Microsoft

What Do You Get For $240Million?

Doug Meacham 1 Comment

facebook-gates.jpgOn Wednesday, Microsoft announced that it will spend $240 million for a 1.6 percent stake in the #2 social networking site, Facebook. As part of the deal, Microsoft is now Facebook’s exclusive advertising partner worldwide until 2011. Facebook is expected to earn $30 million in profits on $150 million in revenue so $240 million sounds like a really big chunk of change for 1.6%. To put it another way, that deal effectively values the privately-held Facebook at $15 billion (that’s billion, with a “B”). As with similar deals in the past, there will certainly be those that scratch their heads and say this is crazy.

If you are in that camp, I recommend that you read Jeramiah Owyang’s post, “How Microsoft Got Their Passport Afterall“. Facebook currently has 50 million users and a userbase that doubles every 6 months. Those users voluntarily provide all sorts of detailed information about themselves. Owyang writes:

  1. Facebook knows who you are: your name, your gender, where you live, your martial and political status, sexual preference, age, where you work, the list goes on. The funny thing is, you’ve voluntarily given that information up.
  2. They also know who you connect to, who you talk to, and what you say to them (you don’t own those private message ya know).
  3. Sure, up to one third of all profile information is bogus, but what about those unsaid gestures: What people do is more important than what they say. What apps you use, how frequent, what and who you click on.

Forget the fact that Microsoft was desperate to beat Google at something. Microsoft wants to be a player in the lucrative on-line advertising business.  This new partnership gives them access to goldmine of personal data with which they can potentially build highly efficient advertising vehicles .  Owyang reminds us that advertising is all about accuracy and margins.  The more accurate an ad is at hitting the target group, the lower the cost.  He also points out that where “Google sells ads based on keywords, FaceSoft can now sell ads on something far more accurate: people“.

Owyang goes on to discuss what the next generation of on-line advertising might look like, suggesting that it will become much more targeted and much more social, and with that comes the risks associates with giving up control.

I think Jeremiah nailed it.  What do you think?