none
Microsoft-Facebook: 'A True Bubble Deal' RRS feed

  • Question

  •  

    It didn't take long after Microsoft (MSFT) MSFT) agreed to take a stake in the social networking site Facebook (BusinessWeek, 10/25/07) for the comments from readers to start pouring in. Most of them focused on the price the software giant paid, a $240 million investment that values the fledgling company run by the 23-year-old Mark Zuckerberg at an astonishing $15 billion.

    "Can anyone else feel the '.com-Bust' coming again? Sell you idiot!" one person wrote on BusinessWeek.com, under the screen name Allison.

    "Facebook worth $15 billion? Insanity!" said another.

    "I am so sick of these nonsense valuations. I've surveyed a lot of my friends and none of us pays any attention to online advertising. I wish there would be a global wake-up call on this," wrote a third.

    And finally, from one reader who uses the screen name Random: "A deal that values Facebook at 100x cash flows and 500x profits is a true bubble deal. Let's call this one what it is. Microsoft is buying real estate for ads and Zuckerberg simply drove the price sky-high based on nothing more then his charisma. That's all there is to it."

    Imagining the Possibilities

    Of course, not all the comments from around the Web were so skeptical. In the blogosphere, a number of people saw plenty of promise in Microsoft's deal. "While many students find Facebook both an obsession and an inane distraction, few can dispute the powerful medium, the 'social utility,' as its slogan reads," writes student Molly Kenney on the Ivory Towerz blog. "High school students, college students, and 20-somethings from around the world are gathered in one cyber-place for advertisers' taking, doling out personal information and exchanging consumer preferences freely. Facebook creator Mark Zuckerberg, and the advertisers who line his pockets, probably know more about my generation than we do about ourselves, and Microsoft knows that getting its foot in the door is one step closer to controlling that knowledge—and Facebook."

    Some of the most experienced industry insiders also saw potential in the deal. John Battelle, one of the founders of Wired magazine and the Industry Standard, now runs Federated Media Publishing, an online advertising network. "I think no one in the mainstream press has truly grokked what Facebook has a shot at doing," Battelle wrote on his blog, "Adsense (Google's (GOOG) advertising platform) driven not by search queries, but by personal profile. It could be a major, major new platform, if we, as a culture, take to it. It's not a given, but it's a very compelling vision."

    But he pointed out there are still questions about the deal that Microsoft and Facebook will have to address. "The big question is this: will Microsoft get to see what they are doing, and work with them, or are they going to be relegated to selling secondary banner inventory?," Battelle wrote. "I have no idea. Do you?"

    Tuesday, October 30, 2007 11:23 AM

All replies