Tuesday, September 25, 2007

Let the Facebook bidding war begin

The Wall Street Journal reported on its Web site Monday afternoon that Microsoft is considering investing $300 million to $500 million for a 5 percent stake in Facebook. The high end of that range would value Facebook as a whole at $10 billion. A spokesperson for Facebook told CNN that it had no comment about the speculation and a representative from Microsoft said the software developer had no comment as well.

But the WSJ indicated that talks are just in preliminary stages and that Google (GOOG), the search industry leader, is also interested in making an investment in Facebook, which has seen its popularity explode since the company developed an open platform for applications developers earlier this year. The site has gone from being one that was more of a niche social networking site popular on college campuses to a legitimate challenger to News Corp.’s (NWS) MySpace.

And for those who follow the ins and outs of the online advertising business closely, it would not come as a huge shock if Google wound up beating Microsoft to the punch. A spokesperson from Google said in an e-mail that the company “does not comment on market rumor or speculation.” But, Google has won high-profile deals from Microsoft several times during the past few years, after all.

Google succeeded in striking a deal to invest in AOL, the online unit owned by my parent company Time Warner (TWX), in 2005 and also wound up forging an online ad partnership with MySpace and other Fox Interactive Media properties last year. Earlier this year, Google agreed to purchase online ad placement firm DoubleClick for $3.1 billion. In each case, Microsoft was rumored to be the other leading bidder.

But Microsoft may have an upper hand in dealing with Facebook since it already has an online ad relationship with the company. In fact, I reported back in July that some people at Fortune’s iMeme tech conference thought Facebook could be worth as much as $10 billion if Google or Yahoo (YHOO) wanted to buy it but that Facebook might be willing to sell to Microsoft for $5 billion due to their existing partnership.

If the WSJ story is true, it is further evidence of how lucrative companies believe the social networking business to be and how rapidly valuations are heading higher.


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