After a series of late starts, Microsoft’s recent riposte may be the savviest it’s made in ages. Digging deep after losing out to Google for exclusive advertising rights on the Internet’s number one social networking site, MySpace, Microsoft settled for a $240 million, 1.6% stake in number two, Facebook.
The deal follows close on the heels of a recent agreement between Microsoft and Facebook that granted the software company the right to place button and banner advertisements on Facebook using it’s nascent adCenter platform.
“Our collaboration with Facebook is about joining our cutting-edge advertising technology and sales force with a true innovator in social networking,” said Steve Berkowitz, senior vice president of the Online Services Group at Microsoft. “The consumer assets brought to bear by this relationship will be very hard to match.”
After speculating that Microsoft’s move may be wildly out of touch with reality due to Facebook’s inflated valuation, Marissa Gluck, managing partner of consulting firm Radar Research, did grant some concessions to the wisdom of the acquisition.
“Social networking – that’s the flavor of the month, but Facebook goes beyond that. It could potentially be the next operating system,” said Gluck.
And in a world in which Microsoft has watched its MS Office suite quickly lose luster as a lure for the Windows operating system — due mainly to free Internet and open source applications of comparative quality — the company desperately needs a popular online platform that will keep users hooked into its products.
In the past, Microsoft has been notorious for stating, declaratively, that its operating system and applications would never migrate to the Internet. However, the fierce but losing bids for MySpace, and the follow up consolation prize of Facebook, has had commentators speculating that the company might be waking up to the stark reality of its situation: It’s losing market share, and it needs a viable, established, online platform that gives it the ability to compete with Google.
A string of costly, unproven attempts to gain ‘net cred preceded Microsoft’s 1.2% acquisition of Facebook. Namely, the Windows Live search program, a large investment that has failed to measure up to the company’s high hopes. Rather than trying to build a web-brand from the ground up, the move on Facebook is seen by analysts as an attempt on Microsoft’s part to buy into a system that already works.
“Since it is one of the most rapidly growing web properties, this is a landmark deal for Microsoft which was a late starter in the syndicated advertising business,” said David Brashaw, principal analyst at Ovum, a telecoms and software consulting firm.
Though it’s a step in the right direction, and an honest bid on Microsoft’s part to take notes from Internet companies — a learning curve that’s proven extremely steep for the operating system giant — it’s also a something of a speculative play: Facebook, while successful so far, is far from a proven concept. “Facebook…clearly has a way to go in its development, and this is one area that Microsoft may be able to both teach it and learn from it,” said Bradshaw. “[Still], these tools clearly have a long term role in making organizations of the future get far more from their peoples’ skills and knowledge.”
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