With results coming in a little earlier than expected, Microsoft has been named the winner of the race to acquire an equity stake in Facebook for $240 million during its next round of financing. The company’s value has officially shot to $15 billion.
How much of this social network will Microsoft lay claim to exactly? A whopping 1.6%, which is much smaller than the 5%-10% that was discussed earlier between the two companies. Owen Van Natta, VP of operations and CRO at Facebook stated “We think this expanded relationship will allow Facebook to continue to innovate and grow as a technology leader and major player in social computing, as well as bring relevant advertising to the more than 49 million active users of Facebook.”
Yesterday Van Natta and Kevin Johnson, Microsoft’s president of platform and services, spoke on a conference call about how this move is completely about the existing advertising partnership between Facebook and Microsoft.
According to news.com, Johnson said of the deal, “It’s a strong vote of confidence in the innovation that Facebook is doing.” Under the terms of the agreement, the report continued, Microsoft will be the exclusive third-party advertising partner for Facebook, and the ads will expand further to the site’s international divisions.
Analysts concur that this move is purely strategic and not economical. Andrew Frank, analyst at Gartner said to CNET News.com “Microsoft is looking to anchor itself in the emerging ecosystem of social-media advertising, and getting this partnership with Facebook is a good way to get a structural advantage.”
The social network is in need of an advertising strategy as many industry professionals have been losing faith in the company that has yet to come up with a profitable monetization structure. The site has said it will make an important announcement regarding advertising strategies on Nov. 6.
As of now, executives have said that there will not be integration of the two companies’ services into the others’. According to the report, when asked about the bid made by Google for a stake in Facebook, Van Natta responded to say that the company went with Microsoft because of the existing partnership.
He said, “We were very fortunate to have a lot of folks that were interested in partnering with us around advertising. We’ve been working with Microsoft for over a year now in the U.S., and it’s been a partnership that’s been really great for both of us.”
News.com said that Eric Schmidt, Google CEO had little to say about the talks with Facebook and the ultimate loss of the stake, however co-founder Sergey Brin said “Occasionally we’ve lost one here, one there. Some of our competitors might be willing to spend very large amounts of money…and we’re really interested in doing sustainable economic deals so we would rather not participate in those sorts of transactions. But we definitely wish those companies well.”
Schmidt said to the press, as covered in the news.com article, “Overbidding always upsets me, and Sergey calms me down. Sometimes people include a revenue guarantee, an absolute number, or on a per-ad basis or per customer…a guarantee (that they will pay the publisher), and they do that to enter a market…It’s perfectly legal as far as I can tell…It’s essentially a subsidy.”