Race for Supremacy

Keeping an Eye on FACEBOOK
by: Jerry Liao

The three giants – Google, Microsoft and Yahoo has been going at each other for quite some time now to make sure they stay on top. Either they will come up with new offerings or they will acquire companies to supplement their applications. Just recently, the apple of the eye for these companies is FACEBOOK.

Founded in February 2004, Facebook is a social utility that helps people communicate more efficiently with their friends, family and co-workers. The company develops technologies that facilitate the sharing of information through the social graph, the digital mapping of people’s real-world social connections. Anyone can sign up for Facebook and interact with the people they know in a trusted environment.

Reports has it that the three giants (Google, Microsoft and Yahoo) are actually in a squabble to buy or at least have a stake at Facebook which currently has around 50 million registered users. Guess who won the race? MICROSOFT.

Facebook and Microsoft Corp. announced that the two companies would expand their advertising partnership and that Microsoft will take a $240 million equity stake in Facebook’s next round of financing at a $15 billion valuation. Under the expanded strategic alliance, Microsoft will be the exclusive third-party advertising platform partner for Facebook, and will begin to sell advertising for Facebook internationally in addition to the United States.

“We are pleased to take our Microsoft partnership to the next level,” said Owen Van Natta, Chief Revenue Officer, Facebook. “This relationship will allow Facebook to continue to innovate and grow as a technology company, as well as bring relevant advertising to Facebook’s nearly 50 million active users.”

“Making this investment and expanding this partnership will position Microsoft and Facebook to better take advantage of advertising opportunities around the world, and is a great win for not only for our two companies, but also our collective users and advertisers,” said Kevin Johnson, president of the Platforms & Services Division at Microsoft. “We have partnered well over the past year and look forward to doing some exciting things together in the future. The opportunity to further collaborate as advertising partners is a big reason we have decided to take an equity stake, and is a strong statement of our confidence in the long-term economics of this partnership.”

Facebook continues to experience strong growth both in the U.S. and international markets; almost 60 percent of Facebook’s users are outside the U.S. With about 200,000 new users registering each day, Facebook continues to be one of the most-trafficked sites on the Internet.

Aside from the investment made by Microsoft, I just want to inform you that Research In Motion (RIM) also launched Facebook for BlackBerry Smartphones, an exciting new BlackBerry software application that enables fast, streamlined and optimized mobile access to the popular Facebook social utility using a BlackBerry smartphone. With the Facebook for BlackBerry Smartphones application, Facebook users can wirelessly send and view messages, photos, pokes and Wall posts. The application allows users to take a photo, upload it to the site with captions and tags; quickly and easily invite friends; manage events; manage photo albums; and manage their status while on the go.

Now let’s go back to the Microsoft / Facebook deal. Let me just mentioned that Microsoft spent $240 million to have a 1.6% stake of Facebook. You heard it right – 1.6 percent. Which brings the value of Facebook to $15 billion – that’s $300 dollars per registered user of Facebook.

The deal allows Microsoft to place ads and sell ads. Microsoft stand to get 1.6% share of the revenue or Facebooks total revenue. Is it worth investing $240million for a measly 1.6%? I am not a financial analyst but I think it’s just too much. So why did Microsoft decided to take the plunge? Simple – to compete and make sure they had a one or two step lead over Google and Yahoo. Or is it?

Google also paid at least $900 million in shared revenue to become the exclusive search provider for popular online site MySpace.com and other Fox Web sites. Reports indicated that the fruit of the said investment is not performing as expected. Google made a bid to have a stake at Facebook, but I don’t think Google is serious about it. They already have MySpace. I hope I am wrong but I think Google suckered Microsoft to make a high bid and then Google pulled out.

One more thing Microsoft should have considered is this – the users of social networking sites. Who are they actually? Do they have the purchasing power that corporate clients would be interested to target? Most of my corporate friends don’t have Friendster, MySpace nor Facebook. There was even a recent study made that said that if social networking sites will charge its users – users will not pay to use their service.

And Microsoft should have known that social-networking sites come and go, and that users jump around from one to the other. LOyalty is not a trait of social networking users. More often than not, most of them even have multiple accounts on different social networking sites.

How Microsoft will turn this investment into a goldmine is definitely an exciting thing to watch. BUt one thing is for sure, the company who initially invested $500,000 in 2004 is now $240 million richer.


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