Is Microsoft Better Off With Facebook?
In October, Microsoft CEO Steve Ballmer said the company planned to acquire 20 companies per year for 5 years, with acquisition prices ranging in size from $50 million to $1 billion. Ballmer's statement came at the Web 2.0 conference in San Francisco and presumably the acquisition strategy he was talking about would focus on Internet companies in an effort to compete with Google. 4 months later, Microsoft made a nearly $45 billion offer to acquire Yahoo! -- hardly the right way to start off on the 20 companies per year route promised by Ballmer.
After being turned down by Yahoo!, and seeing Yahoo! begin talks with News Corp. about a possible deal to keep the portal out of Microsoft's hands, Redmond is reportedly weighing its options. The Guardian's Richard Wray writes, "Microsoft was deciding last night whether to raise its offer for Yahoo or walk away and use its cash to buy a number of web 2.0 companies after learning of Rupert Murdoch's interest in the online search and content company."
One of the alternative options Microsoft might have is to try to buy a larger stake in Facebook, or purchase the company outright. Microsoft invested $240 million in the social network for a 5% stake that valued the social network at $15 billion. That would be a pretty hefty asking price for a company that is only made $150 million last year and is expect to have a negative cash flow in 2008.
But what Facebook offers, is the potential key to a larger share of the search market, the strongest available (if it is available) foothold into the social networking market that everyone is clamoring for a piece of, and invaluable marketing data for about 60 million users. All at an asking price that is far below Yahoo!'s.
We wrote in October when rumors of Microsoft's investment in Google broke that perhaps Google should fear Facebook (for a dissenting opinion see this post). Our reasoning was that by adding Microsoft Live search to Facebook, Microsoft could potentially significantly increase their search share. Further, we are beginning to understand that searches are easier to monetize than social networking pages because searches display intent -- the searcher is already looking for what is being advertised. So while social networking may never be able to fulfill its promise as a killer ad platform, search within social networking sites just might be able to.
Last July, Facebook was already serving 600 million searches per month, putting it in the top 20 of search engines. These searches were mostly for people, groups, events, and applications within Facebook. But that indicates that users of the site are already well trained to use its search engine. Would they use whole web search if it were baked in?
We think they might. Further, Microsoft could use Facebook as the platform for its web based software initiatives. Facebook is already a must have account on college campuses in many Western nations. Microsoft could launch online versions of its staple desktop software through the Facebook platform and bring up a generation of students attached to its offerings -- students who will one day influence the enterprise software purchase decisions are major corporations.
They could also roll their email application into Facebook's in site messaging center and integrate the Windows Live Messenger, truly giving people no reason to leave the site (granted, those changes would be a bit more difficult to push out than rolling web search into Facebook, but certainly doable).
These are of course mostly things that Microsoft could do without the purchase of Facebook. But by buying the social network, they could ensure that all of that search advertising revenue goes into their pocket. While purchasing Facebook wouldn't make Microsoft nearly the web behemoth that purchasing Yahoo! would, nor would it give them the immediate bump in search share that they're pining for, it would give them what I think could be a strong launching pad for creating a very important web operating system and for a fraction of the cost.
What do you think? Does it make sense for Microsoft to purchase Facebook? Or should they up their offer for Yahoo!? Maybe neither is a good fit? Let us know your thoughts in the comments below.
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No way is MS better acquiring Facebook. You could put together a team to replicate Facebook in a matter of two weeks or so. While functionality can be easily duplicated getting user-share is harder just due to momentum Facebook has.
However, with Yahoo duplicating some of their technology might be a bit more difficult and they have things that MS has holes in that Yahoo could fill although they do have some duplicate services that would need to be merged/replaced.
Posted by: optionplaya | February 15, 2008 2:05 PM
I have to say it would make sense.
It could also be a very clever way of getting silverlight installed on a large user base before rolling out to all window users.
Also the brand value shouldn't be overlooked. Students use facebook so getting brand recognition from this audience could be very valueable.
xbox, zune, office, email, messenger, windows and silverlight could gain from this buyout.
I can already see the idiots posting "I have cancelled my facebook account! MS sucks!" and the say no to Microsoft group...
Posted by: Darren Stuart | February 15, 2008 2:46 PM
It doesn't make sense. Neither MS (nor Yahoo, for that matter) need to acquire another property where they struggle to find profits.
Posted by: Israel LHeureux | February 15, 2008 2:54 PM
I don't care if Microsoft acquires Facebook; in fact, I'm fin with it if they do.
I just hope and pray they don't acquire Yahoo. If that were to occur, there would only be two power-players left on the web: Microsoft and Google. That's hardly a choice for consumers.
Posted by: Scott K | February 15, 2008 4:18 PM
When the statistics show that myspace still have something like 70% market, and facebook, is less than 20%, It doesn't make sense. When and if Facebook starts grabbing more share, then its a good idea. Otherwise... like Balmer has stated before its just a fad. On top of that with facebook competing with google so hard on a standard api for services, I think its better for MS to sit out, and wait to see what happens
Posted by: cmdrNacho | February 15, 2008 4:41 PM
Well, I think both the purchases are wrong. Microsoft has sufficient amount of users data. and no social network will make money in the way all of them are operating.
Microsoft should rather venture into online office space. So they should rather ramp up their MS Office(I know they will call it 'Microsoft Office Live Document SharePoint Project Services'(use all these words in any permutation and combination)). Or rather buy Zoho . but do it fast.
Posted by: Varun | February 15, 2008 4:41 PM
How about MS do ebay a favour and buy skype from them.
In fact lets do a list of who MS could buy for pocket change compared to the yahoo deal
skype
digg
ask
cnet
twitter
meebo
xobni
bebo
netvibes
automattic
I bet they would get change from 5 billion for that lot and be more valuble to them than yahoo.
Posted by: Darren Stuart | February 15, 2008 6:05 PM
Facebook is like a candy cake, beautiful and attractive. But you will be sent to an emergency room if you eat it by yourself. So Microsoft or anyone else should not purchase or eat it alone.
Posted by: Search The Tail | February 15, 2008 8:12 PM
Well, buying the whole company (or 51% of shares) is unnecessary. They could integrate their search with less.
Also, talking of Microsoft as some kind of Leviathan is something we did in the past. Microsoft is not big bully he used to be five years ago. Google has much better perspective and is researching many new things rapidly.
Posted by: Srećko | February 15, 2008 11:57 PM
How will this increase MS's search share? They already have desktop search. They already have IE's default search box going off to live. They already have the default page when you launch ie. They already shove it in your face whenever you launch messenger.
Putting the search box on another 600 mil pages will hardly make a difference as at least 90% of those people have already ignored Live once today. Because Live is not as good, in peoples minds at least, as Google.
MS bought FAST for enterprise search, bidding for yahoo is effectively a vote of no confidence in their own search offering on any level.
Posted by: Ronald Hobbs | February 16, 2008 4:46 AM
You may really want to correct your typo "We wrote in October when rumors of Microsoft's investment in Google broke"... Ahem. Microsoft investing in _Google_?
It's been a few days w/ no correction, so I'm posting.
Posted by: DT | February 18, 2008 6:03 AM
Since Microsoft could have their pick of so many different brands and sites, their actions lately have been truly puzzling. How did they go from 20 startup acquisitions per year to Yahoo? And now Facebook? Microsoft will probably dabble with Facebook while looking for the next Facebook.
Posted by: Foreman | February 22, 2008 8:43 PM