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Tim Peter

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October 29, 2007

Facebook didn’t cost Microsoft anything…

October 29, 2007 | By | No Comments

Om Malik gives the skinny on the deal and, like me, seems OK with Microsoft’s bid. In fact, they might have underpaid.

I’m not suggesting $240 million isn’t a lot of money. For you and me, that is. For Microsoft? A company with $23 billion in the bank (that’s billion, with a “B”)? A company that spent $7 billion on R&D in their most recent fiscal year? A company that spent over $11 billion on sales and marketing?

One last stat: Microsoft lost over $3.5 billion over the last three years on the Xbox and Zune product lines. Seriously. What’s $240 million really mean in that context?

Here’s what it means:

  1. Access to customers – Facebook reportedly has 50 million regular users. Regular users increasingly engaged with Google and Apple and everyone not located in Redmond. I don’t know Microsoft’s cost per acquisition, but $4.80 per is damned cheap ($240 million divided by 50 million customers. Even if you factor in the fact that MS gains only 1.6% of the company, $300 per isn’t ridiculously high depending on lifetime value of the customer).
  2. New technology platforms – Microsoft’s online services business (i.e., Live Search and MSN) lost $730 million last year. Clearly, 1.6% of Facebook isn’t going to make that back right away, but it looks a bit like Microsoft is looking to buy – as they have in the past – what they couldn’t build on their own.
  3. Great PR buzz – Finally, folks are talking about Microsoft again. Almost as though they were relevant again. Seems like a long time since that happened, no?

I don’t know that Microsoft will ever see the value of this deal. Like most folks, I’m staggered by how much this deal suggests Facebook is worth. Staggered, perplexed, confused and continually doubtful. Still, Microsoft could have made a dumber move. And they probably blocked Google from doing something similar. That alone, these days, constitutes a win for the Redmond folks. And that doesn’t seem too high a price for them to pay at all.

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