Desperate Microsoft To Invest $240 Million in Facebook

Struggling with its Internet misadventures in the face of the relentless Google onslaught, a desperate Microsoft is investing $240 million in social networking web site Facebook Inc.

Google, which was also keen on a deal with Facebook, has a social networking web site Orkut that’s popular in India and Brazil but has yet to catch on in the U.S..

Microsoft’s investment – which gives it a tiny 1.6% stake in the social networking web site - is set to happen in Facebook ‘s next round of funding and values the profitless start-up at an astronomical $15 billion.

The two companies have an existing relationship under which Microsoft is the exclusive provider of banner ads on Facebook in the U.S. 

Under the expanded alliance, Microsoft will be the exclusive third-party advertising platform partner for Facebook, and sell advertising for Facebook internationally in addition to the U.S.

Facebook will also sell ads on its own through a new ad network that it expects to debut shortly.

Writing on the Microsoft-Facebook deal, the Wall Street Journal said (subscription required):

The deal is rooted in an online-advertising boom that has turned Facebook into the newest Internet darling. In recent years, advertisers large and small that once focused their spending on television, newspapers and other traditional media have started shifting their spending to a host of Web sites. Google has built its fortunes on that shift and others including Microsoft are rushing in.

Founded in February 2004 by Harvard dropout Mark Zuckerberg, Facebook has received funding of $40.7 million from a bunch of marquee investors including Founders Fund, Accel Partners and Greylock Partners.

Facebook claims it’s got 50 million active users and that 200,000 new users are registering every day.

Microsoft has been one of the biggest failures and laggards on the Internet side of the computer industry.

The software giant’s biggest failure is on the search front where Google has walked away with the glory and all the money.

Despite pouring in hundreds of millions of dollars, Microsoft’s MSN search engine is on a downward death-spiral in the face of a far superior service from Google.

Microsoft head honcho Bill Gates and CEO Steve Ballmer have failed to make headway with their online initiatives. As the WSJ story says:

Winning Facebook’s hand could help lift morale at Microsoft’s struggling online business. Over the past four years the software giant has invested heavily into building its own Internet search and online advertising services but has failed to keep pace with the growing online ad market and its leader Google.

The folks at WSJ report that Facebook will break even this year on a cash flow basis on revenues of $150 million.

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