Thursday, October 25, 2007

Faceboom: More on Microsoft and Facebook

Following up on Annie Noa Kenet's earlier post today, the business and tech communities are certainly buzzing with analysis of the Facebook-Microsoft deal.

Here is a sampling of insights on the acquisition and what lies ahead:

WebPro News:

Shelling out $240 million for a 1.6 percent stake in Facebook may be Microsoft's way of keeping Google away from the social networking site, but the deal may not be worth the money unless Microsoft can get Live Search into the service.

It could be a bargain, if they can do what Greg Sterling expects them to do: place Live Search for web searching on Facebook. For some reason, the respective representatives of Facebook and Microsoft played a little coy when asked about search.

Microsoft didn't value Facebook at $15 billion just to own a piece of a possible IPO. Microsoft wants search advertising to be a big part of its business model in the coming years. That youthful demographic of students on Facebook makes marketers drool with the desire to put ads in front of them.

As Sterling noted, anyone who wants to do a web search has to leave Facebook to start one. If people are going to leave, it makes sense for the web search to start at Facebook, with Live Search, and hope people exit through the contextual ads alongside the search results.


Microsoft said it would be the exclusive third-party advertising platform for Facebook, which has more than 49 million Internet users. That extends a previous deal into Facebook sites outside the United States.

Google and Microsoft, now rivals for Internet-based audiences and applications, each expressed interest in a minority stake in Facebook for its growing user base and advertising potential.

The rivals have butted heads before for Internet properties. Google beat Microsoft with a $US1.65 billion acquisition of online video sharing site YouTube last year.

Forrester Research analyst Charlene Li said that Microsoft was a better strategic fit for Facebook, since it knew how to work with software developers and build computing environments – such as its Windows operating system.

"Microsoft is a company that knows how to build platforms, knows how to develop relationships with developers.

Microsoft developed the network that is the biggest, most vibrant one out there," she said. "Frankly, Google didn't bring as much to the deal."

Google Co-founder Sergey Brin told a meeting with Wall Street analysts at the company's Silicon Valley headquarters that his company could partner with important Web sites.

"We don't feel, at a higher level, that we need to own every successful company on the Internet," he said.

Shares of Microsoft rose slightly to $US31.47 from a Nasdaq close of $US31.25, while Google ticked down to $US675 from a close of $US675.82.

Seattle Times:

"Inventory" is the word I kept hearing when Microsoft and Facebook announced their deal Wednesday.

Kevin Johnson, president of the Platforms and Services Division, twice mentioned how much inventory the deal was providing for Microsoft's AdCenter business: "This deal brings more inventory and more value to that ad platform. At the same time it enables both parties to collaborate as Facebook looks to develop new ad type as it relates to the social experience."

By inventory he was referring to space where Microsoft can place ads for clients. It may seem like there's an infinite number of Web pages, but there's actually limited premium real estate for companies to hang their billboards.People are quick to write off Microsoft's ad business because Google seems to have it all. But Facebook helps Microsoft's inventory build critical mass, and it's a great place for Microsoft to develop and show off its new post-search ad technologies.

For a cheekier take, see Microsoft-Facebook: Welcome to the Hotel California from Chris Williams at the Register:

Facebook claims about 50 million users. By our reckoning, that rates them at $300 a piece..

The hyperbole surrounding the favourite uncle dance-off between Steve Ballmer and the Google lads to slip Mark Zuckerberg a few quid so he can buy some more servers has been surreal to watch. Two combs fighting over a bald man, if you will.

Despite the fact the deal is financially insignificant to Redmond, and will likely have no impact on Facebook's strategy, in a broader sense it could mark a watershed for the web 2.0 hypesters. Microsoft's status in mainstream public consciousness means that more people will understand what social networking is about

Perhaps they'll realise that web 2.0 is not there to "connect you with the people around you" and not about some pseudo-academic "social graph". That's the bait. The switch is the big data centre pumping adverts based on your age, where you live, who you're friends with, what you like doing for fun, your politics and your grandmother's shoe size.

...Yeah, man. Targeted marketing will free us all! How could a rich, Harvard-educated white American male do this to us? Oh, wait...

Our view is that this is clearly a major defeat for Google.

We looked at Facebook's longer term plans in our post last July, Will Facebook Overtake Google? By choosing Microsoft as a strategic partner, it is clear that Facebook has greatly strengthened its positioning (and chances) as an up-and-coming, direct rival to Google.

And with this acquisition, Microsoft has nicely leveraged Facebook's growing user base to gain huge ground in its determined efforts to challenge Google's dominance of the lucrative Internet search and advertising markets.

This alliance may well have been sealed by the glue of a common adversary - both companies now have Google squarely in their cross hairs.

The Facebook acquisition dovetails nicely with Microsoft's recent Live Search upgrades and launch of Office Live Workspace, its online Office suite. Cumulatively, these moves signal Microsoft's aggressive return to direct hand-to-hand combat with Google.

Facebook is an ideal platform for these new services to be accessed and highlighted.

Microsoft, however, also gains the added benefit of re-invigorating its brand through a very public alliance with a young, cool upstart that has had no shortage of hype and spotlight. While Microsoft has obviously continued to lead in the software marketplace, it has been quite some time since the company was perceived as offering anything truly fresh online. The Facebook alliance may change that.

The deal may well mark the beginning of a serious challenge to Google's standing as the online world's leading technological innovator.

It seems to be a marriage made in heaven for Bill Gates and Mark Zuckerberg.

And it may turn out to be a real headache for Google.

- Garry J. Wise, Toronto

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