Microsoft Pips Google to Clinch Stake in Facebook

Microsoft piped Google for a 1.6 percent stake in Facebook, the social networking website founded by a university student a few years ago. The former has agreed to pay $240m for a small equity in the socializing Web site.

As a part of the deal, which values Facebook worth $15bn (£7.3bn), Microsoft secured exclusive rights to sell ads on Facebook outside of the United States. Microsoft already has an agreement to sell adverts for Facebook in the US till 2011.

Alaysts were of the opinion that Microsoft has paid a steep price for a small stake. The deal made sense if Facebook is able to alter itself into a hub for all sorts of Web activity.

Morningstar analyst Toan Tran said, "The only way this works is if Facebook becomes sort of the users' operating system on the Internet -- everyone logs into Facebook every day to get in contact with their friends and use a multitude of future applications that will be developed for it."

Facebook was founded in 2004 by Harvard student Mark Zuckerberg, Facebook and registers close to 2,50,000 users a day. The site essentially allows friends to share information. It also permits developers to create games and other applications for its site.

Kevin Johnson, president of Microsoft's platform and services division, said that the company expected Facebook to register 300 million users a day who could be targeted for advertising.

Johnson said, "You combine the number of users with the monetization opportunities and you can figure out a fairly modest average revenue per user per year and you can very quickly get to this level of valuation."

Forrester Research analyst Charlene Li said that compard to Google, Microsoft was a better strategic fit for Facebook. She said, "Microsoft is a company that knows how to build platforms, knows how to develop relationships with developers. Microsoft developed the network that is the biggest, most vibrant one out there. Google didn't bring as much to the deal."

Microsoft and Google are rivals for Internet-based audiences and applications and have bumped heads before for Internet properties. The bidding war for the Facebook deal reprises this contest.