Tuesday, September 25, 2007

Facebook's $10 Billion Dollar Decision

Who would have guessed that Facebook's decision to open their APIs would increase their valuation by 1000% in just one year. That's the valuation Microsoft would be giving them by taking up to a 5% stake for $300-500 million.

If you can't buy them join them...it's a smart move for Microsoft since at least this way they lock out the competition, Yahoo and Google of course. But why would they be interested in Facebook in the first place? Facebook is more than just a social networking site - it's a communication platform that offers many options like social networking and community building. I actually think Facebook is more like Second Life in this way.

But what's in it for Facebook? Charlene Li nails it in her post:

Two thoughts about why Facebook would want an investment with Microsoft.
First, they already are working together. Microsoft sells the display ads that
are targeted against profile information, and will make up about half of the
$150 million in revenues Facebook will generate this year. This is part of a
multi-year agreement that will extend until 2011. And Facebook's unique
marketing value is that not only can the display ads be highly targeted at
actual profile elements, but marketers can also develop a deeper relationship
with Facebook members -- marketer relationships that Microsoft has in spades.

Second, Facebook needs to scale up a business that's both
consumer-oriented and also developer friendly. Microsoft has excellent developer
relationships and also knows a thing or two about how to build successful
consumer (and business -- watch this space carefully)
I would add one important point – BUZZ! Facebook may just hold out to see if Yahoo or Google dig a little deeper into their pockets. Do I hear a bidding war? As long as Facebook keeps the investment at 5% they have nothing to lose!

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