The online world is all atwitter with word that Microsoft won in a bid for a piece of Facebook. They beat Google on the bid, put at around $250 million for less than a 2 percent stake in the social networking site.

Rather than slithering away in defeat, I think Google is quietly smiling here. Microsoft’s purchase of such a small stake for so much money is big for Redmond, because it means Microsoft keeps their advertising deal in place with Facebook.

I’m on the record as not being a big fan of Facebook. It’s cold and impersonal, and it’s a closed network of profiles. It acts as if it was built by business people to make money, not by geeks to make users happy. Then there’s all the hype the place has gotten.

There’s also something not quite right about Facebook’s value proposition to advertisers — targeting based on private profile data. Besides, paying $250 million for less than 2 percent puts the value of Facebook at $15 billion. Sorry, I don’t buy that.

Eric Schonfeld at TechCrunch adds more:

While Google would have been a closer fit in terms of it overall philosophy (more open than not), it may have just been too expensive to buy out Microsoft from its current deal to supply ads for Facebook in the U.S. Given its deep ties with Microsoft, sticking with them was always the path of least resistance. And one could argue that Google has never felt comfortable targeting ads based on private user profile data, which seems to be the great promise of Facebook, ad-wise. Microsoft doesn’t share those qualms.

Viveck Varma Kevin Johnson of Microsoft told a press conference audience late this afternoon that the market justifies the huge valuation for Facebook. The following are notes from TechCrunch.

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.

If this sounds vaguely familiar, it should. It’s called “bubblespeak,” the kind of self-deceptive hype that preceded the explosion of the first internet bubble. A lot of people think that Web 2.0 is pushing a second bubble, and if that’s the case, Facebook may well turn out to be the AOL of this one.

This entry was posted on Wednesday, October 24th, 2007 at 3:58 pm and is filed under Technology. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.