Rumor on Wallstreet this week is that Microsoft is bidding on a 5% stake in the social networking platform, facebook.com. According to the Wall Street Journal, the $300-$500M bid would value Facebook at $10B. The rumor, which by the way, seems to have started on the exact day of Microsoft’s release of Halo3, is reported to have been started by Facebook, not Microsoft. There is little doubt to this, as Microsoft wants all eyes on its much anticipated release.

But, why Facebook and why now? Microsoft, Yahoo! and Google are all vying for market share in the search market - which Microsoft is trailing. Starting with the announcement last year of Google’s acquisition of YouTube.com (a stock deal valued at $1.65B), the other new media moguls have been snatching up social networking sites, like Flickr and even reaching out to build their own. All of this, is designed to extend the advertising platforms of each of the companies. Accessing these heavily trafficked websites, with detailed demographics for the audience (in the case of Facebook, Y! Mash) is in the end, not a bad idea. But, is it worth $10 billion dollars?

Flickr, Facebook and Y! Mash, Yahoo!’s new platform, all target the Gen Y demographic - ages 13 - 23. Even if Microsoft and Yahoo! access user profile information to deliver more targeted ads, the reality is that this demographic is less likely to click on advertisements and has less disposable income than the average user searching Google. Compare this to the more universal appeal of YouTube, which holds the interest of the 33-44 year old segment nearly as well is it entertains those 18-23.

Undoubtedly, accessing that Gen Y audience would bode well for Microsoft’s XBox 360 and what’s more, Microsoft currently has an exclusive ad deal with Facebook. That deal expires in 2011. Would the investment in Facebook help to extend that deal and pump up sales of XBox 360? Yes, probably. Will it help Microsoft gain ground in the SEM market? I’d suggest that there are better ways of going about this.

In the end, accessing Facebook’s audience more intimately is probably worth the $300-$500M Microsoft may shell out. However, if we’re looking to gain ground in the search advertising market, Google seems to have taken a much better deal with the 2006 acquisition of YouTube.com.

This entry was posted on Wednesday, September 26th, 2007 at 12:49 pm and is filed under E-Business, Online Marketing. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.