Last week,
Microsoft bought a 1.6 percent stake in the social network
Facebook (see
right). The international powerhouse handed out $240 million for the tiny portion valuing the site at $15 billion, the
fifth most valuable internet company after Google, Yahoo, Amazon, and eBay. With 50 million users and 200,000 more daily, Facebook hosts a significant customer base on which to draw for companies like Microsoft, and Microsoft’s investment isn’t the only one Facebook has received. Articles from
CNN also mention two hedge funds also putting in similar bids, which Facebook accepted. In all, the social network picked up $700 million dollars to put towards a badly needed structural overhaul and R&D for the future according to British newspaper
The Guardian. They also plan to use the money to more than double their staff from four hundred to seven hundred employees. However, Facebook’s revenue is one-tenth its $15 billion price tag, and the site produces no profits according to one. At this point, many might be remembering the 1990’s dot.com bubble and rags to riches and back to rags rollercoaster that ensued. The inflated price tag is partly the result of an online
advertisement war (see below
left) being waged by technological powerhouses Microsoft and Google. The investment in Facebook was a defensive maneuver on the part of Microsoft as Google has the upper hand in the online arena. Google already has advertisement deals with other social networks such as
MySpace and even has its very own online meeting place called Ortuk. However, some experts like
Matt Rosoff, an analyst specializing in Microsoft, believe that even though the deal was a good move, the price tag smells suspiciously of the 1990’s dot.com era. On the other hand, a recent article in Business Week claims that
the parallel is weak when considering the context of the situation. For one, Facebook is not going truly public for a few more years. Another reason is a result of changes in the technological market. More than 70% of adults in American are online as opposed to 40% in less than ten years ago. Compounded with the fact that most of the new startup companies, or Web 2.0 companies, advertise themselves online instead of using costly television ads. In light of this, I believe that there is justification for the price tag. With so many users already and more joining every day, Facebook is a massive potential advertising machine. Traffic is so high on social networking sites and other Web 2.0 applications that revenue from advertising would be more than significant. Microsoft needs this deal to increase its online presence in the face of a looming internet war with Google. Blocking Google out and increasing advertisement presence is a significant move especially when the price tag only makes up less than a percent of your own companies value.
Last week, Microsoft bought a 1.6 percent stake in the social network Facebook (see right). The international powerhouse handed out $240 million for the tiny portion valuing the site at $15 billion, the fifth most valuable internet company after Google, Yahoo, Amazon, and eBay. With 50 million users and 200,000 more daily, Facebook hosts a significant customer base on which to draw for companies like Microsoft, and Microsoft’s investment isn’t the only one Facebook has received. Articles from CNN also mention two hedge funds also putting in similar bids, which Facebook accepted. In all, the social network picked up $700 million dollars to put towards a badly needed structural overhaul and R&D for the future according to British newspaper The Guardian. They also plan to use the money to more than double their staff from four hundred to seven hundred employees. However, Facebook’s revenue is one-tenth its $15 billion price tag, and the site produces no profits according to one. At this point, many might be remembering the 1990’s dot.com bubble and rags to riches and back to rags rollercoaster that ensued. The inflated price tag is partly the result of an online advertisement war (see below left) being waged by technological powerhouses Microsoft and Google. The investment in Facebook was a defensive maneuver on the part of Microsoft as Google has the upper hand in the online arena. Google already has advertisement deals with other social networks such as MySpace and even has its very own online meeting place called Ortuk. However, some experts like Matt Rosoff, an analyst specializing in Microsoft, believe that even though the deal was a good move, the price tag smells suspiciously of the 1990’s dot.com era. On the other hand, a recent article in Business Week claims that
the parallel is weak when considering the context of the situation. For one, Facebook is not going truly public for a few more years. Another reason is a result of changes in the technological market. More than 70% of adults in American are online as opposed to 40% in less than ten years ago. Compounded with the fact that most of the new startup companies, or Web 2.0 companies, advertise themselves online instead of using costly television ads. In light of this, I believe that there is justification for the price tag. With so many users already and more joining every day, Facebook is a massive potential advertising machine. Traffic is so high on social networking sites and other Web 2.0 applications that revenue from advertising would be more than significant. Microsoft needs this deal to increase its online presence in the face of a looming internet war with Google. Blocking Google out and increasing advertisement presence is a significant move especially when the price tag only makes up less than a percent of your own companies value.
1 comment:
While you bring an important phenomenon into context, I thought you could have extended your post by three or four paragraphs. By elaborating on this issue, your may do a better job of presenting your argument to the reader. On the same lines, just looking at a post alone, creates visual strain on the reader, since there is only one paragraph. For the most part, your links were beneficial, while some were a bit distracting. You link to the article on Naughton twice, both within the same paragraph. I also wanted see a link to the article from Business Week that you referred to and documented evidence for your statement, “Facebook’s revenue is one-tenth its $15 billion price tag, and the site produces no profits according to one.” One aspect that was done really well on your post was your incorporation of pictures, especially the image of the battle between Google and Microsoft. That definitely entertained my reading. All in all, I would highly recommend that spend more time on elaborating your standpoint with various sources. This is an interesting phenomenon and requires thorough explanation.
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