It's all about advertising.
Microsofts $240 million investment for a 1.6 percent stake in Facebook locks out Google as a suitor for the social networking site and will allow the engaged parties to pursue their online advertising interests with some peace of mind, according to analysts.
Microsoft will also continue to be the exclusive third-party advertising platform partner for Facebook, and will begin to sell advertising for Facebook internationally, as outlines in the deal, announced Oct. 24.
In taking the stake, the software giant is effectively locking out Google, Yahoo or any other suitors itching for Facebook, which has confirmed it is valued at $15 billion. In extending the deal, Microsoft is positioning itself for ad growth.
Nearly 60 percent of Facebooks users are outside the U.S. On a conference call Oct. 24, Kevin Johnson, president of the platforms and services division at Microsoft, said that the worldwide online ad market would hit $80 billion in the next two to three years.
Industry experts agree the chief benefit for Microsoft is that it will give the company a key foothold in the emerging ecosystem of social network-based advertising.
Gartner analyst Allen Weiner said that, after Google acquired YouTube and DoubleClick, it was important for Microsoft to retain Facebook, which comScore billed as the sixth most visited property worldwide, with 73.5 million unique visitors in September.
Read more here about Facebook CEO admits to online ad designs.
On the flipside, IDC analyst Rachel Happe said Google isnt a good fit for Facebook because they target ads differently. Google matches ads to their content or context, while Facebook matches ads to individual users and their interests.
In ceding a small portion of its company to Microsoft, Facebook will get a healthy chunk of cash, which will help it expand its employee base from 300 to 700 by next year. More importantly, it will also keep Facebook from being subsumed by Google or someone else, Happe added.
Happe called the deal a bargain for Microsoft because the company will also get access to some of Facebooks user information. While officials on the call refused to clarify this arrangement, Happe said such information will help Microsoft pursue conversion attribution.
This practice involves tracking users clicks and determining how to distribute the pay out for advertising. To do that, Microsoft needs a lot of user activity, which is what Facebook supplies.
"Theyre paying for that information so they can build their algorithms and test them effectively," Happe told eWEEK. "And they get the cachet of winning," versus Google and Yahoo.
Another question experts are asking is whether or not the deal could go deeper than Microsoft supplying ads to Facebook? Might Microsoft learn something from and find value in Facebooks open platform approach?
Read more here about a Microsoft-Facebook and the next Net bubble.
Gartner analyst Allen Weiner said this might not be out of the realm of possibility.
"If anything, there could be some halo effect that you get when you do a deal with a shiny new Web 2.0 property," Weiner told eWEEK. "It does have the possibility of engineering people to think a little bit differently inside the company."
There is a slim possibility Facebooks open approach would affect Silverlight, Weiner said. The analyst said Microsofts rich application tool Silverlight would benefit from an open approach because Microsoft needs to convince people to use it as alternative to Adobes Flash.
However, he cautioned the notion that Facebook development may influence Microsoft development is remote because it goes against Microsofts DNA in bringing out new platforms. Happe agreed, noting that Microsoft loves to own its technology.
So, where is Google in all of this? The search giant is expected to take its Orkut social network to new heights in November by opening it up to developers.
To read more about Google and MySpace opening up their platforms, click here.
Exactly what affect the Microsoft-Facebook deal will have on Googles place on the social networking totem pole is unclear.
Orkut is big in Brazil, but not much elsewhere. Weiner said he suspects Google has been holding back on expanding Orkut until the Microsoft-Facebook tie was assured.
"Microsoft is going to evolve parallel with Facebook and Google is going to intersect with Facebook and thats a risk Facebook may not want to take," Weiner said.
Ultimately, Google, Microsoft and Facebook have to face more than just each other as they troll for online ads on social networking sites. Weiner said players in this space must be careful not to affect users experiences in their haste to monetize social networks with ads.
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