Microsoft takes a stake in Facebook - now what?

5 November 2007

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Microsoft’s purchase of a 1.6% stake in social networking site Facebook for $US 240 million has been welcomed by advertisers in Asia and hailed by some analysts as a landmark deal for Microsoft.
As part of the deal, Microsoft, Facebook’s advertising partner in the US, becomes the exclusive advertising platform for Facebook worldwide.
“We believe it will make advertising on Facebook more available to advertisers,” said Pauline Chu, General Manager, Carat Media Services Hong Kong. “However, the effectiveness of standard online advertising in social networking sites still has to be proved.
“Brands are trying to engage with their audiences in the digital world, and social networking sites provide a good platform to interact with the audience with their high stickiness in these websites. It is time for brands to test their creativity in creating engaging applications and how it goes viral. However, how long will this Facebook phenomenon last, and what’s next?”
David Bradshaw, principal analyst at research firm Ovum, described the tie-up with Facebook as a landmark deal for Microsoft, which was a late starter in the syndicated advertising business.
Bradshaw rejects the theory that by taking a mere 1.6% stake, Microsoft has locked out Google from eventually taking ownership of Facebook, declaring: “There's a very good reason why Facebook can't allow Microsoft to have a free-run: it would severely damage its valuation when it does eventually float.”
The analyst adds: “"Our longer term concerns about Facebook are that it clearly has a way to go in its development, and this is one area that Microsoft may be able to both teach it and learn from it. Current use of sites like Facebook at work is more like social 'notworking' than networking, yet these tools clearly have a long term role in making organisations of the future get far more from their peoples' skills and knowledge."