Open Source Business Strategies Had A Bubble Too

Microsoft's Facebook Deal Might Make Sense If It's An Ad Subsidy... But What About The Hedge Funds?

from the still-scratching-my-head dept

Thu, Oct 25th 2007 2:01pm — Mike Masnick

We had some good comments on yesterday's post trying to do the math on Microsoft's $240 million investment in Facebook, for just 1.6% of the company. A few people pointed out that if you ignore the ownership part, and just think of it as something of a marketing statement for Microsoft's ad network, then perhaps it could make some sense. Maybe. Since the deal does come with a big advertising deal, if Microsoft thinks of the $240 million as a marketing spend or ad subsidy with the chance of eventually having some payback then it could potentially make sense -- depending on how valuable Facebook ads turn out to be, and whether or not it then helps Microsoft sign up additional ad partners. However, what's a lot more difficult to figure out is the corresponding rumor that on top of the $240 million from Microsoft, two hedge funds combined to dump another $500 million into Facebook at the same valuation. It's been reported that Facebook had been looking for $750 million, but those hedge funds don't get any of those additional benefits that Microsoft gets. For them, the best has to be on the fact that Facebook is going to be worth a lot more than $15 billion at some point in the relatively near future. That seems like an awful lot of money to bet on a risky situation without that much upside.

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Filed Under: ad network, hedge funds, social networks
Companies: facebook, microsoft

7 Comments

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anuj, 25 Oct 2007 @ 2:09pm

microsoft is getting desparate
The deal values Facebook at $15 Billion...Microsoft is getting desperate
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matt, 25 Oct 2007 @ 2:56pm

are these hedge funds related to MS in any way? what are the names of the funds?
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Max Powers at http://ConsumerFight.com, 25 Oct 2007 @ 5:15pm

Somethings up
Nobody puts this kind of money into anything without a full game plan that has details we can only speculate about.
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Mike (profile), 25 Oct 2007 @ 7:05pm

Re: Somethings up
Nobody puts this kind of money into anything without a full game plan that has details we can only speculate about.

That's what people said about eBay buying Skype, and we all know how that worked out.

It's also what people said about AOL buying Time Warner.

There may be a plan, but it if you do a little math, it's not hard to see that there are very few options here and they're all betting on a very risky scenario.
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Scott Lawton (Blogcosm), 26 Oct 2007 @ 6:09am

agreed
I'm surprised how many bloggers ran with the $15B valuation story when the stock isn't really what Microsoft is after. Note that if hedge funds do invest, it may NOT be at that valuation -- i.e. I'll bet that the actual public statements of all concerned leave enough wiggle room for MS to have gotton 1.6% PLUS other considerations that are deemed to have value. And/or the hedge funds will get some sort of downside price protection.

BTW, a typo: "the best has to be" = "the bet has to be"
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Microsoft's Facebook Deal, 27 Oct 2007 @ 8:54pm

Microsoft's Facebook Deal
It is good how Facebook.com accepted the cash bonanza from Microsoft but I hope they maintain a tight grip and control of their company otherwise their fate may end up being similar to Excite.com or Web TV. Sometimes a misfortune may disguise itself as a blessing.
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Manoj Kumar, 28 Oct 2007 @ 7:14am

MS / FB joined hands
Its primarily a deal for microsoft to place ads on facebook website. By accepting 1.6% in addition, they seem to have obviously helped FB to raise its value. Its a strategical give-away of 1.6% by FB to MS to increase its valuations. Microsoft simply helped the situation.

NICE!!!
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