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Microsoft Is Getting Much More from Its Investment in Facebook


When Microsoft invested $240 million in Facebook at a $15 billion valuation, the general reaction was one of disbelief. The valuation is too high to justify. But some people at the time felt like the dollar amount was well within the comfort zone of a giant like Microsoft. Here’s how commenter Prashant put it on TechCrunch:

I don’t think that MSFT expects to make money on the $250MM at a $15B valuation. Internally for them it is a $250MM investment to get an exclusive advertisement deal over the next 4 years. The 2% stake is only icing on the cake. Had they announced that they have given $250MM to Facebook for a 4 year exclusive ad deal, no one would have flinched, this is cheaper than the Google/MySpace deal.

Over the past few days, I’ve read a couple other blog posts that make me think Microsoft may be getting much more from its investment. Here’s a quick list of what what Microsoft seems to be getting:

  1. Exclusivity on a huge number of page views, and experience with social context advertising
  2. Insight into an emerging competitor to its operating system and productivity apps hegemony
  3. Model for bringing social networking into the enterprise

Let’s look at #2 and #3.

Operating System and Productivity Apps

Dan Kimerling wrote a great piece on TechCrunch about how Generation Y looks to the new wave of social media apps for functionality previously provided by Microsoft’s desktop and web offerings. As Dan notes:

Facebook succeeds because it is the killer web application for communications and personal information management

These are in-the-flow tools. Facebook users don’t leave Facebook, open email and send a separate message. They do it all, right there. The level of functionality is just right for their usage.

The original Microsoft email and productivity apps were pretty simple, but they did just what people needed, and with skillful marketing tie-ups, Microsoft became the standard for millions of us. Over time, Microsoft has added new features to each release, because that’s how they grew their revenues. You had to get the latest. But what happened was we got to feature bloat.

Via Kathy Sierra, Creating Passionate Users Blog, 2005

Via Kathy Sierra, Creating Passionate Users Blog, 2005

I think Kathy Sierra’s graphic is spot-on for general mainstream users. Personally, I probably use only 5% of the functionality available with the applications.

I’ve talked previously about the Innovator’s Dilemma here. As market incumbents grow, they tend to move up-market in terms of functionality in their offerings. What this does is open the door for competitors with new functions that are simpler to use. These new competitors target a niche, and grow slowly upward from there.

Facebook’s niche is still heavily Gen Y. But they’re gaining a foothold. Microsoft’s investment gives them a ringside seat for what’s happening there.

Social Networking Inside the Enterprise

I was reading a blog post by Doug Cornelius where he reported out notes from a session at the Real World SharePoint Experiences conference. A Microsoft Solution Specialist was describing the roadmap for SharePoint. If you don’t know, SharePoint is Microsoft’s enterprise collaboration software, where teams can build out individual sites to shhare and work on documents and to communicate. Each employee has a MySite, which includes their corporate directory information as well as the the list of groups and documents that are theirs.

Here’s a quote from Doug’s post:

Social networking. Mysite will be the hub of the social network. There will likely be Knowledge Network integration. They are looking to take some lessons from their investment in Facebook.

The Enterprise 2.0 space is hot, and social networking is a big focus for companies and vendors. Through its investment in Facebook, Microsoft can learn a lot of what drives interactions, how people connect and watch the mistakes the young company makes. As Dave Ferguson put it:

Good judgment comes from experience. Experience comes from bad judgment. The corollary is that the bad judgment doesn’t have to be yours.

Microsoft continues to evolve its SharePoint offering, and I look forward to SuperPoking my colleagues one day.

Wrapping Up

At first, the only purpose for the Facebook investment appeared to be advertising related. I’m sure that’s still primary, because of the huge dollars involved.

But Microsoft is also gaining an information advantage for the new wave of social computing that is finding its way into both consumer and business experiences. Given the vast reach of the company’s product lines, that’s pretty valuable as well.

*****

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About Hutch Carpenter
Senior Consultant for HYPE Innovation (hypeinnovation.com)

4 Responses to Microsoft Is Getting Much More from Its Investment in Facebook

  1. My own vast investments are in mutual funds (so I’ve outsourced most of the worrying). Still, a 2% investment, in the business world, tends to mean a lot more than 2% of the total… as in, 10% makes you a grizzly bear in a forest full of squirrels and chipmunks.

    It’s probably my age, but I don’t see Facebook at a killer ap… to me, it’s almost digital velcro, dragging along with it a depressing amount of lint in the form of ads apparently aimed at people who can’t keep up with the complexities of Dancing with the Stars.

    However, the concept of a social site becoming the new version of a portal — your home base, your launch pad — that does make some sense.

    In a corporate / organizational sense, I think managers with working brains will seek out ways to let you tie into things you want or need for your job from the place where you’re most at home.

    Forcing everyone into a single mode is an echo of the corporate infrastructure days, where you had to use the layout and logo chosen by a tame webmaster together with the corporate identity folks.

  2. Alan Bond says:

    and it took you this long to work it out?

    You’re not exactly a rocket scientist are you?

  3. Dave – I actually spend more time on FriendFeed than I do on Facebook. It fits my interests better. But I see the ever-growing numbers at Facebook, and know that they’re doing something right.

    The single mode idea inside a company is pretty important though, don’t you think?

  4. “Alan Bond” – No, I’m not a rocket scientist. I’m a blogger, dude.

    From Wikipedia: “Alan Bond is an engineer, with a degree in Mechanical Engineering. He worked on liquid rocket engines, principally the RZ2 (liquid oxygen / kerosene) and the RZ20 (liquid oxygen / liquid hydrogen) at Rolls Royce under the tutelage of Val Cleaver, and he was also involved with flight trials of the Blue Streak at Woomera.”

    Nice alias…

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