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Deal puts value of Facebook at $15B

Microsoft buys asmall stake of the hotsocial-networking site.

Associated Press
Published October 25, 2007


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SAN FRANCISCO - Rapidly rising Internet star Facebook Inc. has sold a 1.6 percent stake to Microsoft Corp. for $240-million, spurning a competing offer from online search leader Google Inc.

The deal announced Wednesday after several weeks of negotiation values Facebook of Palo Alto, Calif., at $15-billion - less than four years after Mark Zuckerberg started the online social-networking site in his Harvard University dorm room.

Microsoft also will sell Internet ads for Facebook as the site expands outside the United States, broadening an existing marketing relationship that began last year.

Besides validating Zuckerberg's decision to rebuff a $1-billion takeover offer from Yahoo Inc. last year, Microsoft's money should be more than enough to pay for Facebook's ambitious expansion plans until the privately held company goes public.

Zuckerberg, 23, has indicated he would like 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 audience of nearly 50-million active users, who connect with friends on the site through messaging, photo sharing and other tools.

The Facebook investment represents a coup for Microsoft because it provides the world's largest softwaremaker with a toehold on one of the Internet's hottest platforms and a potentially lucrative forum for selling online ads.

Microsoft has been trying to become a bigger force in Internet advertising for several years, only to watch Google deepen its dominance of the space.

In its fiscal year ending in June, Microsoft's online ad revenue rose 21 percent to $1.84-billion. Over the same period, Google's ad revenue totaled $13.3-billion.

With the Facebook investment, Microsoft dealt a rare setback to Google, which had previously trumped its bitter rival in earlier bidding battles involving AOL and Internet ad service DoubleClick Inc.

"Making this investment ... is a great win not only for our two companies, but also our collective users and advertisers," Kevin Johnson, president of Microsoft's platforms and services division, said in a statement.

Tim Armstrong, who oversees Google's North American advertising, declined to comment on the Facebook negotiations during a meeting held with analysts Wednesday at the company's Mountain View, Calif., headquarters.

"We have tremendous respect for them," Armstrong said of Facebook.

Although News Corp.'s MySpace.com remains the largest social network, Facebook has been growing at a far more rapid clip during the past year. Facebook attracted 30.6-million U.S. visitors during September, compared with 68.4-million at MySpace.

FAST FACTS

About the deal

Big money: Microsoft Corp. bought a 1.6 percent stake in Facebook for $240-million, valuing the rising Internet star at $15-billion.

Competitive landscape: The deal gives Microsoft an additional platform for selling ads as it tries to catch up with online search leader Google Inc. It gives Microsoft a toehold in social networking, an area where both Yahoo and Google have struggled.

Facebook future: Microsoft's investment should help with Facebook's ambitious plans to expand, including to markets outside the United States. Facebook users, who are encouraged to expand ties through messaging, photo sharing and other tools, shouldn't see any immediate changes.

[Last modified October 25, 2007, 00:41:32]


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