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Published: Thursday, 10/25/2007

Facebook sells 1.6% stake to Microsoft for $240 million

ASSOCIATED PRESS

SAN FRANCISCO - Rapidly rising Internet star Facebook Inc. has sold a 1.6 percent stake to Microsoft Corp. for $240 million, spurning a competing offer from online search leader Google Inc.

The deal announced yesterday, after several weeks of negotiation, values Palo Alto, Calif,'s Facebook at $15 billion, less than four years after Mark Zuckerberg started the online social networking site in his Harvard University dorm room.

Microsoft also will sell Internet ads for Facebook as the site expands outside the United States, broadening an existing marketing relationship that began last year.

Besides validating Mr. Zuckerberg's decision to rebuff a $1 billion takeover offer from Yahoo Inc. last year, Microsoft's money should be more than enough to pay for Facebook's ambitious expansion plans until the privately held company goes public.

Mr. Zuckerberg, 23, has indicated he would like to hold off on an initial public offering for at least two more years. In the meantime, Facebook hopes to become an advertising magnet by substantially increasing its audience of nearly 50 million active users, who connect with friends on the site through messaging, photo-sharing, and other tools.

The Facebook investment represents a coup for Microsoft because it provides the world's largest software maker with a toehold on one of the Internet's hottest platforms and a potentially lucrative forum for selling online ads.

Microsoft, of Redmond, Wash., has been trying to become a bigger force in Internet advertising for several years, only to watch Google deepen its dominance of the space.

In its fiscal year ending in June, Microsoft's online ad revenue rose 21 percent to $1.84 billion. Over the same period, Google's ad revenue totaled $13.3 billion.

With the Facebook investment, Microsoft dealt a rare setback to Google, which had previously trumped its bitter rival in earlier bidding battles involving AOL and Internet ad service DoubleClick Inc.

The coup shows Microsoft is getting more savvy about the Internet, said Matt Rosoff, an analyst for the research group Directions on Microsoft. "I think they understand it now and they're proceeding correctly. Two years ago, I would have said they don't get it at all."

Although News Corp.'s MySpace.com remains the largest social network, Facebook has been growing much faster during the past year. Facebook drew 30.6 million U.S. visitors last month compared with 68.4 million at MySpace. Microsoft's networking equivalent, Windows Live Spaces, drew 9.8 million.



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