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.'"

Comments

Title is misleading

[ShiningSomething]

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.

Re:Buy low...

[sm62704]

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

Re:facebook my ass

[cyphercell]

hey, your not "Tom" as in "Tom" from Myspace are you?

Re:Facebook has already "jumped the shark"

[geddes]

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.

Microsoft

[king-manic]

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.

Re:Microsoft

[Shisha]

Any sufficiently advanced incompetence is indistinguishable from malice.

Re:Smart Move? Maybe...

[iced_tea]

Balmer: $750 million dollars?? ****Agrrrrahhahahhahahah***** (throws chair)

Facebook: Ok $240 million could do nicely as well.

Re:facebook my ass

[lb746]

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.

Re:facebook my ass

[Oliver Defacszio]

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.

Re:Facebook == Shot at Adobe's Flash

[Crazy Taco]

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