Just Announced Microsoft Deal Values Facebook at $15B And Makes 23 Year-Old A Billionaire
The $240 million price Microsoft paid for a 1.6 percent stake in Facebook demonstrates just how badly the world's largest software maker wanted to deepen its relationship with a startup that doesn't even have $200 million in annual revenue. By sealing the deal Wednesday, Microsoft finally trumped Google after losing previous high-stakes bidding battles involving a stake in AOL and ownership of online video sharing pioneer YouTube and Internet ad service DoubleClick Inc.
Besides buying a stake in Palo Alto-based Facebook, Microsoft also will sell Internet ads for its Web site outside the United States, broadening a marketing relationship that began last year. Microsoft's investment underscores the skyrocketing value of online communities like Facebook — a place where Web surfers look for dates, connect with friends and family, and share photos, videos and music. In 2005, News Corp. paid $580 million for outright ownership of MySpace.com, the only social network larger than Facebook. With its investment, Microsoft established Facebook's current market value at $15 billion less than four years after Mark Zuckerberg started the Web site in his Harvard University dorm room.
Already considered a whiz kid, Zuckerberg, 23, now looks even smarter for rebuffing a $1 billion takeover offer from Yahoo Inc. last year. And Facebook now should have more than enough money to pay for its expansion until it is ready to go public. Zuckerberg has indicated he wants to hold off on an initial public offering for at least two more years. In the meantime, Facebook hopes to become an advertising magnet by substantially increasing its current worldwide audience of nearly 50 million active users who connect with friends on the site through messaging, photo-sharing and other tools it offers.
Although MySpace remains the largest social network, Facebook has been growing much faster in the past year. Facebook attracted 30.6 million U.S. visitors during September compared with 68.4 million at MySpace. Microsoft's entry in the social networking arena — "Windows Live Spaces" — attracted 9.8 million U.S. visitors, according to comScore Inc.
To support its growth, Facebook is gearing up to more than double its payroll during the next year to about 700 employees. The company currently employs about 300 workers with annual revenue believed to fall between $100 million and $150 million. Microsoft appears to be very interested in Facebook's success with "widgets" — the interactive capsules that offer applications available on other Web sites. Outside developers have created about 8,000 widgets since Facebook began soliciting the contributions in May. Facebook may have chosen to hook its wagon to Microsoft because Google has made no secret about its interest in building its own social network.
Only in America folks!
By Michael Liedtke, with Jessica Mintz contributing.