Microsoft has won the fight to be Facebook’s new investor and advertising partner, beating Google in some heated negotiations and getting a stake in the company. Microsoft has not bought Facebook, but it now owns 1.6% of the fastest rising social network, paying $240 million for the stake and setting Facebook’s value at $15 billion.
Under the terms of the deal, besides owning a portion of the company (and thus receiving stock in an IPO or payment if the company is sold), Microsoft will now sell Facebook’s international advertising, in addition to the U.S. advertising it already handles. Microsoft does not lose Facebook’s ad sales to Google, which it likely would have if it had lost to Google.
The relatively small size of the buy (considering numbers like $750 million were being tossed around) could mean that Facebook did not like the terms Google was looking to get out of the deal, and decided to instead go with Microsoft for less. Alternatively, if could mean Google was looking to value the company at far less than Microsoft did, and Facebook did not want to give away too much of the company, and instead went with Microsoft’s higher valuation but lower percentage.
TechCrunch thinks that the cost to buyout Microsoft’s U.S. ad deal, which runs through 2011, would have been too high, making the Microsoft money more profitable than Google’s money. However, we know that Microsoft’s deal with Facebook would earn the company less than $10 million if Facebook was sold to someone else. On the other hand, that payout was for the original deal, which ran through 2009, while a newer deal signed earlier this year runs through 2011, and may have pushed that number higher.
Under the $15 billion valuation, other investors in Facebook now have some idea how much their stakes are worth. The New York Times explains:
The Microsoft investment throws the value of the holdings of Facebook investors into the stratosphere. Mark Zuckerberg, the 23-year-old Facebook founder who dropped out of Harvard to build the company, owns a 20 percent share which is now valued at $3 billion. Accel Partners, the venture capital firm that invested $12.7 million in May 2005 and owns 11 percent of Facebook, now holds stock worth $1.65 billion.