Microsoft buys a Piece of Facebook

That’s right. The Wall Street Journal announced this afternoon that Microsoft has agreed to buy a 1.6% stake in Facebook for a cool $240 million. This values Facebook at a total of $15 billion. This move has been highly anticipated and talked about for months, but no one was sure whether Microsoft would win out over the likes of Google.

It is absolutely amazing how quickly the value of social networking sites have risen. Just 2 years ago, News Corp bought all of MySpace for $580 million. Even more recently, Mark Zuckerberg, creator of Facebook, turned down a $1 billion offer from Yahoo just last summer. While many thought he was either crazy, or just an egomaniac, that move is looking quite brilliant today.

So, what could make a social networking site like Facebook possibly worth $15 billion? First, as nearly every media outlet has documented, advertising on TV, radio, and in print continue to decline while digital media has been growing tremendously. Most analyst expect this trend to continue as the internet and other digital technologies become more and more a necessary aspect of our lives. This means that large companies will be spending big bucks online.

Second, Facebook probably has more access to information about their users than any other site. Just go look at your FB page. You’ve told them what music you are currently listening to, what city (and maybe even neighborhood) you live in, and what you are doing this weekend. The idea is that advertisers can use all of this information, on an anonymous basis, to serve you advertising that you are actually interested in at that moment. Advertisers will pay a premium for this.

While all of this targeted advertising on Facebook is great, it’s not enough to make this deal worthwhile. Facebook currently has 50 million users and according to Compete, about 25 million unique visits a month. Yes these numbers are high, but not nearly as high as other sites. What Facebook/Microsoft must do is target their users throughout their time interacting with digital media.

So, if they know that I am a 26-year-old male living in Baltimore, and I am part of a group that loves Apple products, they can send me ads not only on Facebook, but on other sites as well as mobile, etc. The ideas are really endless, as long as the technology and programming can keep up.

Undoubtedly, $15 billion is a ton of money. Microsoft may have made a smart move by only buying 1.6%. If nothing else, they’ve guaranteed that Google didn’t get it.

Will Facebook every actually be worth that much money? I guess only time will tell.