Source: Microsoft wins Facebook bid battle
Update: 12:30 p.m. see bottom. — After weeks of speculation, Microsoft appears to have won a battle with Google over who would get a stake in Facebook, according to a source familiar with the situation. — Microsoft and Facebook were close to a deal, according to the source.
Context & Ripple Effects
This ends a month-long auction that began when the Wall Street Journal reported in late September 2007 that Facebook was shopping a stake to Microsoft or Google. For Microsoft, the prize extends a relationship built since August 2006, when it landed the Facebook ad deal and became the site's exclusive ad seller.
The syndicated pickup shows how contested the story was on the day: Bloomberg, Valleywag and Scobleizer all chased it, while Silicon Alley Insider argued outright that "Google Has Already Won" regardless of who paid — framing the deal as defensive rather than decisive. The confirmed terms, $240 million for a 1.6 percent stake, imply roughly a $15 billion valuation for a company with no public revenue figures.
First-order effects
- Microsoft converts its exclusive ad-sales relationship into an equity position, locking Google out of a direct foothold in the fastest-growing social network of 2007.
- Google loses the bidding battle and must defend its search-advertising core without a stake in the social-graph data that advertisers increasingly want alongside query intent.
Second-order effects
- The implied ~$15 billion valuation becomes the reference point for every subsequent Facebook financing round and for valuations across the social-networking sector generally.
- Rival social platforms and ad networks now face pressure to find their own strategic investors, since Microsoft has shown a premium will be paid to keep distribution inside its own ad pipeline.
Third-order effects
- If strategic minority stakes become the standard way for ad platforms to secure distribution, capital markets start pricing social networks less on revenue and more on which large acquirer needs them most — a structure that favors founders keeping control while giants bid against each other.
- The Microsoft-Google rivalry formally widens from search and software into social advertising, setting up regulatory scrutiny of how dominant ad platforms buy access to user data.
The trend: Web advertising competition is shifting from owning search inventory to securing social-graph distribution, with Microsoft and Google bidding up minority stakes in the platforms that hold users' attention.