Microsoft beats Google to Facebook shares

Microsoft has beaten Google to be the first to invest in social networking web site Facebook, paying $240m (£117m) for a 1.6 per cent stake in the company.

Microsoft also won exclusive rights to sell ads on Facebook as part of the investment.

Though the revenue model is unproven, the site is believed to be valuable because it has lots of information about its users, so advertising can be narrowly targeted to individual preferences.

Microsoft has stepped up efforts to be a player in the $40bn (£19.5bn) market for online advertising, which is expected to double in size within three years. It paid $6bn (£3bn) to acquire digital advertising firm aQuantive in August.

Google is still waiting for the outcome of a US anti-trust decision on its $3.1bn (£1.5bn) acquisition of web advertising firm DoubleClick, a company Microsoft also tried to buy.

What really counts here is that Microsoft has tied-down the advertising partnership with Facebook, said Ovum analyst Phil Codling.

"Since it is one of the most rapidly growing web properties, this is a landmark deal for Microsoft which was a late starter in the syndicated advertising business," he said.

The Microsoft purchase values Facebook at approximately $15bn (£7.3bn).

See also:

What next for Google?

Google has enjoyed phenomenal growth since its relatively humble beginnings, but how does the company plan to expand further?  25 Oct 2007

Microsoft agrees to pay EU fines

Software firm drops last two anti-trust appeals  25 Oct 2007

Microsoft and Google muscle into mapping

TomTom/Tele Atlas identified as take-over target  17 Oct 2007

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