Repost from 2007 Facebook Insanity

Jan 6, 2009 by Sam

Facebook/Microsoft is it the Free Advertising or just Insanity.
October 25, 2007 by admin.
Today microsoft announced it was paying $240 million for less then a 2% stake in Facebook.  This has to be the best deal that Google did not do. What does Microsoft get for this investment ? A small piece of Facebook’s advertising potential. This is mind boggling ( or mind bloggling in today’s world) . What was Microsoft thinking. Well, I know what they were thinking- we can’t beat Google so let’s buy a  social network with little actual social value where users actually go to do something as socially unrpoductive as possible. (Ok. Maybe a virtual foodfight can be productive is some ways – it is certainly more “green” and probably decereases the chance for global warming as food growers use emit less carbon when their food is not thrown out  as in a real food fight) . The reality is that for For Microsoft where there is some redeeming value in terms of strategic access to programming talent and cutting edge image- it could be no worse then adding to their $945 million ad budget.  Think about it, with a small $240 million investment Microsoft is not the Hip, Cool, cutting Edge, “Gets it” software company. Also don’t forget the endless press mentions and the publicity it geenrated. I would venture to say that this is probably one of their best advertising investments they have ever made.  Plus if the bubble continues they could potentially get an actual IRR on that investment. For them, For Microsoft, it is a no lose proposition. But, What is almost impossible to understand is as  the Forbes blogger Elizabeth Corcoran  http://blogs.forbes.com/meetblog/2007/10/facebook-making.html noted,  that two hedge funds invested at the same valaution as Microsoft. I ask – Who hit them on the head last night . How can this make sense from a risk reward prospective.  The numbers just dont add up. Oh one seconf I think I have a located quote from one of the Hedge Funds on this investment which could explain their thinking:  “I don’t think this is too much to say this really is a historic … a time when we’ve transformed the landscape of media and the Internet,”  Oh, sorry my error, this is not a quote on their Facebook investment, No. Fraid not. This is a Steve Case quote on the  rationale  of the AOL Time Warner Merger. Pretty scary stuff.
Posted in Venture Capital, Web 2.0 Early Investing | Print | No Comments »