Microsoft buys 1.6% of Facebook

It was a fierce battle between Microsoft and Google in gaining a stake on Facebook. Earlier today, Facebook announced that it has made an agreement with Microsoft for a 1.6% equity stake worth $240PHP 14,085INR 20,340EUR 229CNY 1,747 million.

Wow! That makes Facebook total valuation at $15PHP 880INR 1,271EUR 14CNY 109 Billion (with a big B). Facebook could now become the 5th largest pure internet company in terms of market capitalization, right after Google, eBay, Yahoo and Amazon.

But why such a small purchase? Why Microsoft?

Well, this purchase was all about advertising. Google and Microsoft wanted to put their foot in front of the door. And the best way to strike an exclusive advertising deal with Facebook was to buy into the company. Now that Microsoft is a stakeholder, they can now position their world-class advertising prowess and promise Facebook more ad revenues than any other.

Google is great with links/text micro-advertising (AdWords/AdSense) but if Facebook just ends up using AdSense, they don’t need to partner with Google as anybody can just sign up with AdSense. Besides, AdSense has poor performance track record with social networking sites.

With Microsoft’s ad sales team, they can deliver top notch banner ad deals with Facebook. That’s sure money for each and every ad impression on Facebook. Microsoft’s $6PHP 352INR 508EUR 6CNY 44 billion aQuantive purchase is paying off for the Redmond giant.