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Three Reasons Microsoft Paid So 'Little' For Facebook

Posted by Zonk on from the i-guess-it's-all-relative dept.

An anonymous reader writes "Microsoft's $240 million investment is much smaller than the rumored $750 million that Facebook sought. Why the difference? Wired Epicenter's Terrence Russell analyzes the deal, and points out three good reasons why Microsoft got a 'bargain'. 'Microsoft Only Needs an Entrenched Position - Ballmer's plan to acquire 100 startups in 5 years is still sketchy, but we got the point -- Microsoft wants momentum. If the company is to go forward as planned then taking a small, strategic piece of Facebook makes sense. Microsoft's financial interests in Facebook's ad platform already exist, so it only makes sense to strengthen that tie as the hype builds.'"

9 of 155 comments (clear)

  1. Smart Move? Maybe... by gbulmash · · Score: 4, Interesting

    This was more sneaky than some people think. They only had to spend $240 million to create such a stratospheric valuation that no one else would be stupid enough to buy at that price.

    If people say "Facebook's the flavor of the month and it's never going to warrant a $15 billion value because the next flavor of the month will come along and steal its thunder," then Microsoft wins because Facebook can never find other investors at that valuation. That creates a cascade effect of investor avoidance, forcing Facebook's actual value down to where it's reasonable and Microsoft can snatch it up at a bargain.

    If, on the other hand, people drink the Kool Aid and start pumping up the price of Facebook, Microsoft can sell out its interest at a profit.

    I'm thinking the answer is the first possibility... they put Facebook's value at $15 billion to discourage others from investing in Facebook and make Facebook beholden to them.

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  2. Plans... by pubjames · · Score: 3, Interesting

    Ballmer's plan to acquire 100 startups in 5 years is still sketchy

    What kind of a plan is that? No wonder Microsoft is losing its way.

    Compare and contrast with the business plan of Steve Jobs, which I think can be summed up as "make great products"...

  3. Re:Smart Move? Maybe... by davidsyes · · Score: 2, Interesting

    Well, if they do THAT, then I think Google's owners will DEFINITELY buy F/B at $500MM, JUST to make sure they have controlling interest. Then, they even FURTHER drive down the valuation, then buy out mshaft's share.

    Y/N/M?

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  4. facebook my ass by tomstdenis · · Score: 1, Interesting

    I was on facebook for kicks and I quickly realized it's full of little kids and their horrible grammar. In every group I joined [from singles groups to music/piano player groups] there was a continual barrage of horribly misspelled postings, lots of retarded "lols" and all that jazz. Nobody takes any of the serious chatter serious, and the fun chatter is just asinine like "join this group to keep facebook alive!" or whatever.

    Frankly, if you're not a moron, or some attention whoring pre-schooler, I don't see why people would care about it. Not like the "friends" you have online map to anything realistic in the "real world." And no, joining the "let's keep facebook!" group won't influence whether facebook is alive and kicking or not.

    Tom

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    1. Re:facebook my ass by Elendil · · Score: 1, Interesting

      > there was a continual barrage of horribly misspelled postings, lots of retarded "lols" and all that jazz

      So you came back to ./ instead? Your logic escapes me.

  5. Re:Facebook == Shot at Adobe's Flash by cyberjessy · · Score: 4, Interesting

    You are probably right. Microsoft should be worried that if Flash actually went Open (as in real open), innovative companies would start delivering really compelling, desktop-grade applications over the browser. There would be nothing stopping Google from putting up a better Microsoft Office. Or countless other innovative companies from killing the Windows platform.

    Well .... if Flash went open that is. I have a feeling it might happen soon.

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  6. That's a funny take on the sale... by Socguy · · Score: 2, Interesting

    I was just reading the Globe and Mail, Canada's most prestigious newspaper, and they had a slightly different take. Facebook was in the drivers seat and forced Microsoft to pay more for less. Google didn't need Facebook, but Microsoft did. http://www.reportonbusiness.com/servlet/story/RTGAM.20071024.wmicrosoftstaff1024/BNStory/Business/home

  7. Re:Microsoft's 'Innovation' at work by miffo.swe · · Score: 2, Interesting

    Microsoft has a bad management issue where money is king and the product just a means to an end. It could just as well be vacuum cleaners they sold. It has never been about innovation and will probably never be. Unlike IBM Microsoft has absolutely nothing to stand on other than their applications barrier to entry. Their research centers is a complete joke where the occasional good stuff very rarely gets into any production. If something goes into production they mess it up like with winfs. They are looking franticly for any means of revenues than Windows/Office which is about all the revenue source they have. Unless they find a new cashcow they are just going to die slowly. This must happen before OS/Office apps becomes commodities or competition forces them to substantially lower their prices to the "unmonopolized" real market value.

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  8. Re:Facebook == Shot at Adobe's Flash by Crazy+Taco · · Score: 5, Interesting

    There would be nothing stopping Google from putting up a better Microsoft Office.

    That makes no sense. There are five things stopping Google from just throwing out a better Office.

    1. The amount of sheer work involved. Microsoft Office has been developing for well over a decade now, and even just cloning it would take a huge amount of labor and financial investment. And then making it actually better than Microsoft takes even more time, planning, strategizing, and investment. Google is big, but they have bought so many companies and have so many projects going I question whether they would have the manpower for such an investment.
    2. Infrastructure is stopping Google. Animations, eye candy, processing power... all of those are subpar when you are talking about the Internet. Yes, you have flash which looks good, but the downloading of the swf files embeded in the pages can be quite slow, and it would get even slower if lots of people started using it (unless Google made some more monstrous server farms, and that would be another huge economic investment). Some things are simply resource intensive enough that they are just better done on the desktop. (And yes, wordprocessing seems simple, but when you start packing in lots and lots of features, animations, etc, you generate a large memory and resource footprint)
    3. Security is stopping Google. Corporations are not going to start editing their sensative files over the Internet. They aren't going to transmit that data all over the web, and they aren't going to store it on Google's servers. They just won't, regardless of whether encryption is used. It will be viewed as too big a risk.
    4. Entrenchment is stopping Google. Microsoft Office is entrenched. I'm not just talking about users being comfortable and used to it (and therefore not wanting to change), I'm talking about being entrenched corporately. Most corporations have built innumerable applications that integrate and work with office, and you can't just rip out one suite and replace it with another without causing the majority of enterprise processes and applications to break. Very few corporations are going to be willing to switch unless Google somehow comes up with some undeniable, overwhelming reason that they must use the Google product. And I can't think of any scenario that would fit that bill (this very issue, btw, is why Open Office is not, and probably never will be, adopted at the corporate level).
    5. Lack of financial gain is therefore stopping Google. Unless Google can think of ways to overcome all of these issues, they are not going to recoup their investment (and make no mistake, developing an Internet Office application that is better than MS Office is an incredibly large investment). There are many other areas less dominated by competitors where the pickings are easier and the return on investment is higher. They may make simple spreadsheet apps that may drive a few private users to their site (and generate some advertising dollars from the extra traffic), but trying to truly trying to take dominance from Microsoft in the Office arena simply isn't going to be in their gameplan. It just isn't worth it.

    Or countless other innovative companies from killing the Windows platform.

    This is even less likely to be true than what you said about Google and Office. How is having access to an open version of Flash going to kill the Windows platform? Because you are talking about Flash, that implies that you are talking about web development. The Windows Platform is an operating system. Therefore you are attempting to make the claim that open Flash will allow a third party company (which, by the way, will almost certainly have less manpower and money than Microsoft) to develop some sort of web OS that will render a mature, entrenched desktop OS like Windows obsolete. Actually, lets leave out the mature and entrenched parts of the argument for a moment (although they alone are enough to kil

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