Microsoft Deepens Its Relationship With Facebook, Again

Software Giant Will Drop $240 Million for Hotly Contested Stake in Social Net

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NEW YORK ( -- In what appears to be a coup for Microsoft, the Redmond, Wash.-based software giant is taking a $240 million equity stake in Facebook in a round of financing that values the company at $15 billion.

As part of the deal's terms, Microsoft will be the exclusive third-party ad-platform provider for Facebook. It will also begin to represent some Facebook inventory internationally. Microsoft already has a deal to sell third-party IAB-standard display advertising on Facebook in the U.S. Earlier this year the terms of this deal were extended to 2011.

What do with the cash?
With the injection of cash and the mammoth valuation, it begs the question just what will Facebook do with all that money? For one thing, it'll invest more resources into wooing advertisers.

"We see continued improvement and great progress with the overall monetization of the Facebook inventory," said Owen Van Natta, chief revenue officer at Facebook. He also said the funding would allow the social network to continue its hiring spree, expand internationally and "focus on innovation and how we create an even richer experience for users."

Microsoft and Google were both said to be in the running to finance this latest round of funding. At stake is an entry into arguably the web's hottest property and a potential advertising goldmine should Facebook be able to mine the vast amounts of data its users upload onto their profiles and use that information to target advertising. The company is on the brink of making a major push toward doing that, hosting an advertiser-focused event on Nov. 6 in New York.

Facebook has also recently trademarked the term "SocialAds." According to two ad-industry executives familiar with the company, it is also interested in targeting its users with advertising off Facebook via a network play, a move Facebook has not confirmed.

Kevin Johnson, president of the Platforms and Services Division at Microsoft, builds on the value proposition to advertisers globally "as Facebook innovates around new ad types unique to the social experience."

Interpublic's smart move
Incidentally, one of the most prescient investments into Facebook now appears to be Interpublic Group of Cos.' summer 2006 commitment to spend $10 million in media dollars on the site in exchange for a 0.5% stake. That investments value today? About $75 million, if all the valuations pan out.

On a conference call announcing the Microsoft deal there was some back-and-forth on whether it includes search technology and monetization. "The deal does not include web search," Mr. Van Natta said during the conversation.

Addressing the massive $15 billion valuation of Facebook, a company that will bring in about $150 million in revenue this year, Mr. Johnson said it "was not outside the realm of possibility" for Facebook to grow to 200 million or 300 million users. "You can combine that with monetization opportunities and combine that with average revenue per user ... and very quickly get to these levels of valuations," he said.

"It's pretty obvious they've got big plans in advertising," said Debbie Aho Williamson, senior analyst at eMarketer. "They may have intentions to become the Google of social-network advertising."

Worldwide social-network ad spending is predicted to be $1.235 billion in 2007 and reach $3.63 billion by 2010. In the U.S. those numbers are $900 million for this year and $2.515 billion for 2010.
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