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Three Reasons Microsoft Paid So 'Little' For Facebook
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.'"
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.
Start a happiness pandemic
No-one in TFA is claiming that Microsoft should have paid more for the 1.6% share it bought. It's suggested that it could've sticked to the same overall valuation and paid $750 million for a 5% stake. It's still the same price, it's just that they bought too little. And that seems a fair question that does not deserve the scare quotes.
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"...
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?
Previously: "Linux... Toward the Sunrise..." Now: "Linux... Toward the-- No, now, part of Every Sunrise"
Microsoft needs to get Silverlight out there. $240 million to Facebook is the cheapest method of getting hundreds of millions to install and use it, willingly.
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Buy low? I figured out who all you slashdot people are. Mr. Gates, Mr. Ellison, Mr. Trump, Mr. Carmak...
;)
$240,000,000 and you folks say that's a bargain? If I had $240,000,000 I sure wouldn't blow it on a website! I'd blow it on fast cars and expensive booze and hookers. Hell, I'd stick it in the bank at 5% interest and blow the $12,000,000 interest on fast cars and expensive booze and hookers every single year and leave the whole $240,000,000 to my kids. Come to think of it, if I had that kind of money I wouldn't NEED hookers!
I might even buy an iPhone, too.
-mcgrew
mcgrew's razor: Never attribute to stupidity that which can be explained by greedy self-interest
hey, your not "Tom" as in "Tom" from Myspace are you?
Under the influence of Post-Cyberpunk Gonzo Journalism
I think you are wrong about that. Social networking sites have a huge amount of "stickyness" because of the network. In the end, the value of a social networking site to the user is the size of the network. Social Networks are tricky things, there is no way that me and all of my facebook friends will collectively decide that facebook isn't doing it anymore and we'll move to twitter. For example, I signed up for twitter cause the concept and feature set seemed cool, but I never went back after more than two times because I only had two friends on it. On the other hand, I think maybe one example of a social networking app falling is AOL Instant Messenger. AIM used to be the way everyone I knew IMed. around 1998 it exploded. However, in the past two years I have noticed that more and more of my friends are depending on GChat, and aren't signing on to IM anymore. About 25% of my friends now have abandoned AIM and moved onto GChat. I think the two reasons this happened are 1) the horribly bloated AIM software that is just unpleasent to use. 2) GChat sort of snuck in as an automatically activated feature of GMail and people started seeing their friends just showing up on their list. Remarkably though, AIM still, after 9 years, has three quarters of my IM contacts.
Never ascribe to malice what can adequately be explained by incompetence.
Microsoft corollary: Unless it's Microsoft then never ascribed to incompetence or bad management what can adequately explained by pure unrelenting evil.
"There are more things in heaven and earth, Horatio, than are dreamt of in your philosophy."
Man #1 - MS wants to buy 100 startups? Maybe they will buy a couple that can show them how an OS is supposed to work?
/. shirt) Imagine a beawolf cluster of 100 companies........
Man #2 - Redacted, turned out to actually be a woman
Man #3 - Wasn't this the MS business plan since way back in the early 90s? This is news?
Man #4 - (claiming to be spouse of man #2) Is there really 100 startups worth buying? I thought the venture capitalists were becoming a bit put off on the whole tech thing?
Man #5 - (throws a chair) MS will buy 100 startups if they have to secretly pay those companies to start up... MS will kill the competition in the buying startups sector!!
Man #6 - Will they support iTunes?
Man #7 - (dubiously wearing a
Man #8 - Shouts "Sorry, have to run and go start a company......"
Seriously, 100 startups? Why not 49? Why not 'as many as it takes'... what is the deal with 100? Microsoft begins with an M, why not 1000 startups?
Support NYCountryLawyer RIAA vs People
Balmer: $750 million dollars?? ****Agrrrrahhahahhahahah***** (throws chair)
Facebook: Ok $240 million could do nicely as well.
You must be on Facebook, what, with your mispelling and all!
Err.. as soon as the value drops down, people will grab it up. I seriously doubt overpaying for a slice of the pie is somehow going to make people *less* interested in facebook.
MABASPLOOM!
I don't understand people that post comments like this. You joined facebook, then went off to join music/piano player groups on there. Needless to say facebook doesn't work for people looking to meet 42,000 new friends that may or may not be real. That's what myspace is great at. I'm a new musician in a new city, I want to find other bands/muscians/etc, i would go to myspace and see who has a half billion friends and realize they spend more time on myfacespace then playing music, so join them and play music together. Problem solved.
As for Facebook, if you join it, to socialize with your friends, it's completely different. Make an account, find people you actually know on it, add them as friends and login maybe once a week or so. Suddenly your actually able to keep up to date on those 10-15 people without having to call them weekly to find out whats going on. Sure some people freak out about this vast amount of stuff I can find out that your doing, but I only know about it because you posted it on there for the world to see.
I rarely join the groups on facebook, and when I do, I do so with a grain of salt realizing a digital group like that that is rather pointless in the first place. However the ability to add a study group or other real life type groups and post discussions, share meeting times and plans, as well as see everyones class schedule on there. That's what makes facebook useful.
This is why we need to stop putting myspace and facebook into the same group. They really aren't as similar as people keep saying they are. Facebook is for people already with friends that want to keep in touch easier, MySpace is a network for meeting new people and getting new connections.
No, it's not less creepy.
The world's burning. Moped Jesus spotted on I50. Details at 11.
what's Facebook? :-)
Here's my question, and it's sincere, because I'm not a Facebook member:
Why is any of that desirable? Honestly. I graduated from high-school in 1993, and I have a current e-mail address and phone number for the dozen-or-so people who still matter to me from those days. When we move, change contact information, or whatever, we send our little group a quick notification, and life moves on. Why on Earth would I want to be contacted out of the blue fifteen years later by someone who probably hasn't crossed my mind since graduation night (or insert whatever non-school equivalent event suits your purpose)?
An example: my sister is a member. Perhaps six months ago, one of my first real girlfriends from the ninth grade in 1989 sent her a message asking how to find me on Facebook, so that we could catch up. Catch up with what? We haven't spoken in *at least* ten years, and she's apparently churned out a few kids in her mining-town trailer park about a thousand miles from here. We're total strangers by this point with utterly nothing in common, and yet people find it scintillating to imagine this kind of scenario through the magic of Facebook? "So, how have the last ten years of your life been? Oh, fifty pounds you've put on... isn't that something? Four kids? Fantastic." Is that what they call a "reconnection?" No thanks.
Maybe I'm just not much of a sentimental, but if a friendship hasn't stood the tests of time organically, why should I suddenly be excited to drag the corpse up out of its well-deserved grave with Facebook? Some of my closest friends live hundreds of miles away, yet we stay close because of things in common and, you know, other friendship qualities. The most important of these is a willingness to put a little, tiny bit of work into actually being a friend. Maybe that means visiting every couple years, or maybe it's even something as small as keeping my phone number and e-mail information written down somewhere and using either or both from time to time. I do those things for them. Relationships that don't have those qualities are about the last things I want to pursue, and Facebook seems to make it way too easy to be a "friend" without being a friend.
-
Inventor of the term 'pardon my French'.
Well, we know how this will go. First M$ invests in them, and they start to suck. G'bye Facebook!
I think a perfect settlement would have been for Microsoft to continue business as normal and innovate all they want, the only restriction being that they not be allowed to buy any more companies. If they are this magnificent well of innovation and ideas, go ahead, show us. 8 years later, with effectively no penalties actually imposed on this company, the best they come up with is a plan to buy 100 web companies in the next 5 years.
What innovations have we had from Microsoft in the last 8 years?
Prior to that we have web based email (HotMail), web browsers,
-USR1
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
that money would've been much better spent in making their products as good as/better than the competitions to give consumers more incentive to not defect.
Not all conservatives are stupid,
but it is true that most stupid people are conservative.
- Hume
Facebook? I'm gonna make my own! With hookers! And blackjack!
That's right, blame the users.
occultae nullus est respectus musicae - originally a Greek proverb
Yes, but how much do you want to bet that Microsoft has some sneaky stuff in the sale contract that prevents FaceBook from selling at a lower price without Microsoft's permission because said sale would diminish the value of Microsoft's investment?
Start a happiness pandemic
Yeah, perhaps they realised any price they pay would be far more than this bubble 2.0 site's actually worth.
then I could tell all my friends to come on MyFace
While you have a point, it's not always just so easy to keep in touch with people you care about -- and this is especially so when your lost high school friends fell out of touch a couple of years ago or so instead of a decade ago.
There was no post-secondary school anywhere near my hometown. We all scattered and we all moved and so we all fell out of touch at once. Our old phone numbers were no longer valid (those few with cellphones got a number local to their new locale). Too many of them had their email address nailed to their ISP and that ISP doesn't operate outside of the county (I had a mailcity account and mailcity went and deleted it -- fortunately I was one of the first to get a gmail invite). And a lot of people didn't even have email at the time. We couldn't inform one another of our new contacts because we all changed contact info simultaneously, all we knew was the destination University of each. It wasn't that people didn't work at it -- it was that there wasn't anything to be done about it. I'm socially awkward at the best of times, I hated losing those friends that I had spent so long forging anyway.
Not too many years later, and people reconnect. The ones that I'm not real friends with trade one message apiece or none at all, might not even bother filling in the "how do I know this person" field (or however it is presented). The ones that I was real friends with but no longer care about trade maybe a handful. And that special one or two people that you get back in touch with -- they are worth the time spent looking at the other couple hundred more dubious friend requests.
Maybe your situation is different. You have another reply talking about how he just goes to his friends' homes and forgets the others. Even if I knew how to find them that's a 5 hour trip best case scenario, and it's not because I purposely distanced myself from them. Now, I don't think I'm the common case either, but you seem genuinely confused as to why anybody would want this.