Facebook is holding a press conference at 2 pm PST to discuss and presumably confirm the Microsoft investment. We’ll be liveblogging the event here. Stay tuned.
Call Notes
Call is beginning at 2:07 pm
Viveck Varma, MS, Owen Van Natta, Facebook, Kevin Johnson, Facebook, Brandee Barker, Facebook are on the call.
Viveck is saying the press release below has minor errors and will be re-issued. We will update it as it becomes available. He’s actually reading the entire release to the call participants.
200,000 new users register for Facebook every day.
Microsoft ad deal was extended to 2011 early this year.
Owen and Kevin:
Owen is saying this investment will help Facebook grow. They have nearly 50 million active users. This alliance will help them create the best user experience.
Kevin - “this deal signals a major advertising syndication win for Microsoft.” This is a “win-win-win.”
Now taking questions
Q: How do you support valuation?
Viveck: Online advertising is $40b/year, will grow to $80b per year. Equity stake in facebook is a strong statement of confidence in MS’ ad platform and in facebook. If you look at FB growth and think that they will get to 200 million users in future, combine that with monetization opportunity along with modest rev/user/year, the valuation is supported.
Q: Signal a bigger partnership around other products?
A: Nothing specific, but the partners will be doing a lot more together over time.
Q: Why Microsoft over Google?
A: (Owen) We were fortunate to choose from partners. We have existing relationship with MS and we had the opportunity to expand it.
Q: Any new restrictions on platform developers?
A: No new restrictions
Q: (mine) Any other investors in this round?
A: No comment, not saying one way or the other (JMA note: this suggests there may be other investors even beyond existing ones).
Q: Will we see any reciprocity? Any FB apps integrated into any MS properties?
A: Not announcing anything right now.
Q: Josh Quitner - who else was interested in investing?
A: Not announcing anything.
Q: Why did MS only take a 1.6% stake? Does this money affect FB IPO plans?
A: No real answer. Investment was the best fit for both companies.
Q: Is this deal just for banner ads?
A: partnership extends across adcenter platform for MS, not disclosing anything around web search advertising. Deal does not include web search ads like Google/Myspace deal.
Q: Any minimum payment that is guaranteed under ad deal? If so, will it be disclosed?
A: Kevin is saying they are very pleased with current deal, but strategic deal, way collaborating together, equity position provides economic and strategic value of overall partnership. “We feel very good about the deal.” Owen is saying that they want to focus on innovation and user experience, and this deal allows them to do this.
Q: (Om Malik) What kind of performance on FB from previous ad efforts? What will FB use the money for?
A: Kevin: we continue to see monetization improve, many initiatives underway to drive it higher. We’re seeing great progress on deal so far. Won’t discuss specifics on click throughs, etc., both parties have agreed to keep that confidential. At a high level, both parties see monetization on an eCPM basis improve. Owen: We’ll use the capital to continue to fund innovation and growth; we plan to expand employee base dramatically next year to 700 employees; doubling user base every six months; international growth is very important.
Q: How did deal come together? Also, what kind of collaboration between two companies? How deep will it be?
A: Owen: we’ve been working with MS for over a year, constantly talking about evolving partnership. MS is doing a huge amount of building around adcenter.
MS is Facebook’s exclusive advertising partner, expanding from U.S. to global in today’s announcement.
Q: Does adcenter have access to profile data in serving ads?
A: user trust is core, as is providing highly relevant ads. want users to feel like trust is not violated in any way.
Call is ending at 2:38 pm PST.
Press Release On The Investment:
Facebook and Microsoft Expand Strategic Alliance
Microsoft to take equity stake in Facebook; companies expand advertising deal to cover international markets.PALO ALTO, Calif., and REDMOND, Wash. — Oct. 24, 2007 — Facebook and Microsoft Corp. today announced that Microsoft will take a $240 million equity stake in Facebook’s next round of financing at a $15 billion valuation, and the companies will expand their existing advertising partnership. Under the expanded strategic alliance, Microsoft will be the exclusive third-party advertising platform partner for Facebook, and will begin to sell advertising for Facebook internationally in addition to the United States. Financial terms were not disclosed.
“We are pleased to take our Microsoft partnership to the next level,” said Owen Van Natta, vice president of operations and chief revenue officer at Facebook. “We think this expanded relationship will allow Facebook to continue to innovate and grow as a technology leader and major player in social computing, as well as bring relevant advertising to the more than 49 million active users of Facebook.”
“Making this investment and expanding this partnership will position Microsoft and Facebook to better take advantage of advertising opportunities around the world, and is a great win for not only for our two companies, but also our collective users and advertisers,” said Kevin Johnson, president of the Platforms & Services Division at Microsoft. “We have partnered well over the past year and look forward to doing some exciting things together in the future. The opportunity to further collaborate as advertising partners is a big reason we have decided to take an equity stake, and is a strong statement of our confidence in the long-term economics of this partnership.”
Facebook continues to experience strong growth both in the U.S. and international markets; 59 percent of Facebook’s users are outside the U.S. With an average of 250,000 new users registering each day, Facebook continues to be one of the most-trafficked sites on the Internet.
On Aug. 22, 2006, the companies announced a U.S.-only strategic alliance that named Microsoft the exclusive provider of standard banner advertising on Facebook using Microsoft’s digital advertising solutions and the Microsoft® adCenter platform. In early 2007, the terms were extended to 2011.
About Facebook
Founded in February 2004, Facebook is a social utility that helps people communicate more efficiently with their friends, family and coworkers. The company develops technologies that facilitate the sharing of information through the social graph, the digital mapping of people’s real-world social connections. Anyone can sign up for Facebook and interact with the people they know in a trusted environment. Facebook is a part of millions of people’s lives and half of the users return daily. Facebook is a privately-held company and is headquartered in Palo Alto, Calif.About Microsoft
Founded in 1975, Microsoft (Nasdaq “MSFT”) is the worldwide leader in software, services and solutions that help people and businesses realize their full potential.
First,
This post should have been on pownce.
1. Can you post it again without the $15B - so I go all Marie Osmaond on you?
2. Was anything being being valued at the aforementioned amount before the bubble burst?
At a $15B valuation, what would the exit have to be to make any money? What’s MSFT thinking? What sort of company would even buy a company with that valuation?
If I were Zuckerberg, sell the company and go buy an island…when/if the crash comes you won’t even be able to get half of $15B.
Soo…With a $240 million investment @ $15 billion valuation it looks like a 100x revenue multiple. Wow.
Amazing Stuff!
I must admit that if I was Mark Zuckerberg and Steve Ballmer had mouthed off in public about how easy it was to replace all my hard work, I don’t think I would have done this deal - I would have said F*CK YOU!
But….then again….perhaps the valuation is just that!
Correction: so I don’t go…
Look for the PHP to evaporate, and for Facebook to be recoded in .NET, to show all developers “how .NET leads to having a successful website”.
This is the same thing that happened to MySpace, when MS injected employees into the company before Mix06 except with CF.
OK - so all they get is $240 million?! What about the billions?! This is anticlimactic. But its clever how they phrase it as “$240 mill at $15 Bill valuation”.
Will Zuckerberg become the next CEO of MSFT? OK, so who is gettin jacked here?
PS - Is this on CNN?
~49 million users at $15 billion: I find it hard to believe that each Facebook user is worth $306.12.
So, what were the errors on the original press release?
@Graham
The users are not with that much. The Facebook system and projected growth, is.
I love how so many people *think* they know how to value a company.
hahah, facebook in .NET… haha.
That won’t scale. One article I read stated Myspace page view requests fail 1 of 8 times.
Caroline’s question was great
“Watson, where is the needle!”
Michael, if it’s possible to ask: Will anything change for the users and will there be buy-ins of extern applications/functionality?
go om!
$240M for 1.6% of Facebook *and* the opportunity to partner with them is not the same as valuing Facebook at $15Bn outright. We don’t know what value Microsoft is placing on the partnership part which could include enticing revenue share etc.
Only $240 million which is less than 2 percent of the company? It is interesting at even at $240 million Google was not interested. Was the $750 million to $1.5 billion a big hype that Google did not bite?
Personally it looks like another Second Life type of PR hype. Even some investors are questioning the valuation - CIBC Analyst - “$15 billion is a lofty valuation”.
please stop this live blog thing.Post your summary once the conf is over. No need to sensationalize than it actually is.
MySpace runs off of ColdFusion on top of a .NET compiler. The ColdFusion interpreter couldn’t scale so they employed a CF compiler for .NET to takeover and it eliminated the scaling problems. Facebook still tanks even though it runs on PHP, speaking as someone who’s used Facebook for three years.
.NET is faster and more scalable than PHP is; ask Battle.NET how they like it.
@ David
Point taken. But I think the value of “Facebook the web app” is “Facebook the network of users.” I think the user base is the attraction for both members and advertisers. Even if they quadruple the user base (as they project) and the online advertising market doubles (as they project), this valuation seems overly optimistic.
“hahah, facebook in .NET… haha.
That won’t scale. One article I read stated Myspace page view requests fail 1 of 8 times.”
It’s not about scaling, or failing MSSQL servers, it’s about showing the world what technology made facebook so successful. DOTNET of course. Just like macromedia cold fusion wasn’t really behind myspace. it was DOTNET.
news.com/MS-to-invest-150-million-in-Apple/2100-1001_3-202143.html
They only invested 150 million in Apple and apple actually had a physical product to sell.
What was the first thing they did?
“Hey boy, Yeah, Jobs, you… BOY, you’ll be using Internet Explorer on Mac as the default browser.” Then Gates stood above Jobs in god like fashion when Steve announced his “new best friend”. You should all know Microsoft by now enough that I shouldn’t have to write this for you.
I’m on the call, and I’m pretty sure that the comments you’re attributing to Vivek were actually made by Kevin Johnson (who needs to stop yelling).
#24 - you are correct - Vivek said nothing after the intro.
See , that is the problem. Nobody gained anything with this live blog except feeding some false information.
So as an employee, no one will make any real money off this till they A) Convert Stock to MSFT Stock or B) Go IPO?
I’m betting that Myspace will IPO first and ruin Facebook’s chance, altho the CEO says IPO is a while away. By then, the window will be closed, IMO.
“I’m betting that Myspace will IPO first ”
Intermix went IPO a LONG time ago. Long before NewsCorp bought their stock.
http://finance.yahoo.com/q?s=mix&d=t
Yeah, so watch NewsCorp spin them off to an IPO much like EMC did to VMW.
So how will an emplyee benefit here???
Relax on the valuation. I think people should like at the investment as a rebate/discount on Microsoft’s ad services. Facebook is a very important testing ground for Microsoft and $250m is the chump change price of admission.
MySpace is intermix’s biggest property, MIX would instantly be dead if MySpace was removed and sold as it’s own company. I’m almost positive News isn’t the only investor, just the largest one.
It’s not likely to ever happen. This announcement is no surprise to me. They are setting up for an IPO.
This is talking to the the investment bankers that determine the IPO price, talking to the dutch bidders:
“Microsoft believes it, so should you”
Then they will sway the market and get the 15B “for real”. Like Robbin Hood, I mean the opposite of that.
Before you think Microsoft is smart or even logical, consider they paid this man 100k per year, where he was working 4 hours per day, and finally quit because he couldn’t handle it.
http://www.thesmartestman.com/.....x?showID=1
Now apply that logic to the Facebook valuation and voila.
I like this live blog - Why wont Zuckerberg be the CEO of FB when MS is just taking 1.6% of the company? Does it mean that MS has taken over FB with just 2%? MS didnt buy the whole company and FB folks are so fucking lucky!
I, for one, love the good old excitement of a live blog.
It takes some effort too. Like taking frantic laptop notes at a meeting plus you also have to wait for the page to reload.
“See , that is the problem. Nobody gained anything with this live blog except feeding some false information.”
Quotes were attributed wrongly. It happens. It’s a live blog, deal with it accordingly.
I liked the live blogging too - except my carpal tunnel just got worse doing all those refresh and scrolling. They should ajax in the new comments and updates!
Soory but this isnt just insane. This is crazy and totaly stupid thinking that a sn is 15 B worth. I think in the next year or maybe a little later the next crash will happen like in 2000. Facebook is a great site, yes it is but their real valuation is ridiculous. But we will see what will happen. That deal is much more stupid like the one between google and youtube. This money is gone i bet on it. The user can choose if they dont like new functions of a service and then they go to another one. There are many others waiting out there ^^. Thats the different between companies like microsoft or apple where your options are very limited.
@TheNextBubble,
This is a scheme. The investment is an anchor. There will be more like it soon.
It’s going to be used as “proof” when setting an initial stock price.
It would be like starting a private corporation, then having 1000000 shares.
You sell 10k of the shares for $1M, then using that as an anchor tell the smaller investors then tell them the shares are worth $100 a piece. They are trying to use the reputation of MS to do this. To create confidence. You have to remember that Facebook doesn’t actually have physical goods of any kind. So they are literally based on a house of virtual cards.
Making people believe enough to siphon wealth is tricky. I’m sure this will go on for months or a year or so before they try to get SEC approval. Again, this is just my opinion.
Marcus Live blog is good…i like it so lets see what people are saying thinking and doing…thats the sweet thing about it!
So, basically, they said absolutely nothing we didn’t already know.
Wow, exciting.
microsoft got what it must achieve, namely the adcenter boost from the facebook exclusivity till 2011. if you want ads on facebook, you must join adcenter; this probably isn’t a hardship for the major ad buyers, but for the smaller ad buyer who wants to reach the facebook audience this is probably a boost for adcenter’s reach.
on the other hand, why isn’t the deal more strategic and larger in % ownership? there are alot of areas where microsoft would like to rub off some of the facebook magic, like tying their IM networks together, etc., that are traditionally microsoft’s attitude towards deals of this sort. assuming zuckerberg was the one in driver’s seat, this smaller size/scope deal must be limited to what facebook was willing to give up.
thus i think this is an ala carte deal. facebook got a big player to value it at $15b, which sets a benchmark for additional investor in this and future rounds, including ipo. microsoft got what a must have to stay in the game.
interesting angle is whether the uncompleted doubleclick merger caused google the deal. given the current display ads only mode of facebook, the completed aquantive deal seems like a plus for microsoft.
additional thoughts on: http://aintnolai.wordpress.com.....arte-deal/
Facebook is lucky
Facebook is reaching the natural implosion point each social network has, where it’s becoming too big and unfocused to still be of any use. Zuckerberg should have cashed in. Microsoft is just trying to buy some web 2.0 coolness, which will only add fuel to a Facebook backlash.
“thus i think this is an ala carte deal. facebook got a big player to value it at $15b, which sets a benchmark for additional investor in this and future rounds, including ipo. microsoft got what a must have to stay in the game.”
Facebook is still private though. The SEC can’t rule on this at all I think. Where is the ethical threshold on this.
Why doesn’t a private corporation pay another corp 5 million to invest 1 million in 1% of it, then go for a 100 million IPO and grab 96M profit?
I’m not talking about announcing it publicly, but where should the line be drawn. I hope whoever finally approves the IPO takes a GOOD LONG LOOK at past valuations considering.
Very interesting. My views on how one can justify the valuation: http://therealmccrea.wordpress.....5-billion/
Funny stuff. But I think I know why microsoft is not going to buy more. Just think for a moment. Facebook is now unique because it has a PLATFORM. How long will it take to myspace, hi5 and orkut to build their platform? As far as I know, myspace is going to open one in few weeks and if it will happen, then many of the facebook developers will write apps for myspace. Why??? Because they want to earn more money and if your app is good in both platforms, then it will have higher value and all developers know that. Now, time is the most important thing for new comers and for developers. For developers, because they with a good product they can lose the moment of first product and the situation will like on facebook. Many apps, but 80% of people use first 10 products. The effect of 80/20.
Maybe it is the reason why the share of facebook is bought by microsoft, not google…… Maybe google don’t need it anymore. ;-))))
I hope that what google want to release on 5th November will be a platform, then it will be very, very interesting.
FaceBook is not gonna crash! Lets watch and see!
I have never seen a company dodge so many questions in my entire life. Zuckerberg barely answers any question during interviews and, when they put together a conference call to discuss the deal, Facebook reps say they can not comment on half of the questions.
This was such a waste of everyone’s time.
Someone tell me if I am on target on this.
MS wins big on this one. For a peanut investment on their part they lock in a deal to deliver ads until 2011. Keeps Goog out and they spend little cash for a little 2.0 coolness and the opportunity to test their ad delivery system. They also have the foot in the door to integrate other parts of their business into FB.
FB appeared to just want a 15B valuation for a possible future IPO. What they got was handcuffed to MS who will no doubt bully FB at every opportunity and turn FB into MSFB . They got a decent amount of cash, but I don’t see how this really benefits them. They still have to prove that they are worth the $, which means they have a whole hell of a lot to do.
FB has just sold their soul to the MS in hopes of getting to Wall Street.
Now that Microsoft has about 2%, what’s to stop another player from getting 3% or more?
“FB appeared to just want a 15B valuation for a possible future IPO. What they got was handcuffed to MS who will no doubt bully FB at every opportunity and turn FB into MSFB . They got a decent amount of cash, but I don’t see how this really benefits them. They still have to prove that they are worth the $, which means they have a whole hell of a lot to do.”
When Novell signed the deal with MS for MS to distribute Linux to Walmart, they were going broke. Microsoft’s Steve Ballmer told them the deal was exclusive until 2 days before they signed. At that point Steve calls Novell board and tells them he made a mistake, and retracted that clause. Novell was so strapped they had to sign.
Apple was also in dire need of cash when they sold 150M worth of non-voting stock to MS and MS locked in exclusive Office on Mac and explorer as the default browser.
I would guess that they need liquid assets like now if I was a betting man.