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Microsoft has invested $240m (£117m) in social networking site Facebook in exchange for a 1.6% share of the company. That puts a value of $15bn (£7.3bn) on a firm that has only been in existence three and a half years.
So why does Microsoft think Facebook is worth $15bn? Here are 15 possible reasons....
1. The network has gone viral in the last 12 months, with more than 50 million users worldwide and a user base that is growing faster than great rival MySpace. According to Facebook, it adds 200,000 new users each day.
2. The average user spends 3.5 hours a month on Facebook - more than the average user on rival MySpace - which is increasingly attractive to advertisers.
3. Facebook is the current Web 2.0 darling - popular with ordinary users and "tech heads" alike.
4. US research reveals that Facebook users come from wealthier homes and are more likely to attend college than MySpace users - increasing that attraction for advertisers.
5. Microsoft's investment makes them a serious player in the growing market of "social advertising". Social network profiles are full of personal data that users voluntarily hand over, which is very useful for targeting adverts.
6. Sixty percent of Facebook users are outside of the US - so Microsoft's investment buys access to a global audience quickly and simply.
7. Facebook is the new web: The decision to open up the network to outside developers turned Facebook into a destination for many uses, like messaging, photos and video. Of course, as Facebook is on the web it could never really be the new web.
8. Every major content firm with an online presence is either working on a Facebook application or has already launched one - from Google to the BBC.
9. According to a report, 233 million hours of work are lost each month in the UK due to staff looking at social networks. Advertisers can now target people when at their desks.
10. The openness of Facebook is attracting a wealth of talented developers who can launch their applications to millions of users quickly.
11. Facebook messaging is the new e-mail. Everyone feels stressed from a deluge of e-mail from unwanted people and companies. But Facebook messages are always from friends.
12. Facebook's "status updates" have become the easiest way to let friends know what you are doing and how you are feeling at any given moment.
13. Facebook thrives on playful applications such as Pirates, Zombies, Super Wall and Top Friends, which have made the network a place to play as well as communicate.
14. Facebook is the acceptable face of blogging - you can reflect your life and personality online without being seen as a "blogger", which often carries a geeky stigma.
15. Facebook is worth $15bn only because Microsoft says so. The value of Facebook is based on a 1.6% share of the firm being worth the $240m Microsoft paid for it. Microsoft and Google were in a bidding war for a slice of the firm and both companies have large pockets. This was not just business, this was personal, according to some analysts.
See also:
Microsoft pays $240m for tiny Facebook stake Microsoft is shelling out $240m for a 1.6 per cent stake, helping the Facebook reach a $15bn valuation in its current fund-raising company. This is a somewhat surreal price for a company that will have revenues this year of maybe $150m, according to analyst estimates.
The Register wrote:
And just think, a few short weeks ago, Microsoft CEO Steve Ballmer was comparing Facebook with GeoCities, in an interview with The Times. If he was trying to talk down the price, he failed.
Microsoft might one day be able to flip its stake at a profit - but that looks like a long term coming. The deal makes more sense if it is seen as Microsoft paying to play: for the cash, it gets to beat rival suitor Google for exclusive global third-party rights to sell advertising on Facebook.
Microsoft had previously landed a deal to sell US banner advertising on Facebook in August 2006. Today's announcement expands the pact internationally — with approximately 60 per cent of the site's nearly 50 million users registered outside the US.
Quote:
"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,"
Kevin Johnson, president of Platforms & Services at Microsoft said.
Under the deal, Microsoft will sell banner ads, with both companies splitting the revenue.
Palo Alto-based Facebook said the investment will allow it to further expand overseas and develop an advertising system tailored to its users.
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