Ending months of speculation, booming social networking site Facebook has not only signed an exclusive agreement with Microsoft to be its third-party advertising platform, but the world's largest software company has also sweetened the pot by taking a $240 million equity stake in Facebook's next round of financing, pegging its value at $15 billion.
Having already worked with Microsoft for domestic ad sales for the past year through the adCenter platform, Facebook is extending that relationship to its international ad sales as well. Kevin Johnson, president of the Platforms & Services Division at Microsoft, touted his company's investment and the expanded advertising relationship as proof of its belief that social networking and advertising will continue to grow.
"This deal represents a major advertising syndication win for Microsoft, and signals a vote of confidence from one of our largest advertising partners," he said. "The equity stake we are taking in Facebook is a strong statement in our faith in the platform. It reflects that strong vote of confidence."
The deal, signed yesterday, ended speculation in recent days that rival advertising network giant Google had the upper hand in courting Facebook for an exclusive agreement. The strength of Facebook's established partnership with Microsoft won out, according to Owen Van Natta, vice president of operations and chief revenue officer at Facebook.
"We were fortunate to have a lot of folks interested in working with us around advertising, [but] we've been working with Microsoft for about a year now," said Van Natta. "Expanding that relationship beyond the U.S. borders to make it a global relationship was directly in line with that experience."
Van Natta remained cagey however, when discussing whether or not Facebook would integrate any of its users' personal profile information with Microsoft's ad targeting software. He stressed that Facebook does want to provide its users and advertisers with highly relevant advertising, but "at the same time we want to make sure that users don't feel we've violated their trust in any way." He focused instead on the Microsoft platform's ability to provide targeted advertising in general.
"AdCenter is a big platform with massive scale and they do targeting across many sites across the Web," he said. "I would imagine that a lot of the things that Microsoft is able to do on other sites is going to be leveraged on how they do things on Facebook."
Van Natta declined to name any other investors in its financing bid beyond Microsoft's approximately 1.6 percent take, but did say the company intends to use the funding to expand its staff and its international operations. Facebook is already the ninth most visited Web site in the U.S. according to Internet ranking company Hitwise, and has seen a 102 percent increase in users compared to the same time last year.
"We're planning on expanding our employee base dramatically next year. We expect to end the year with over 700 employees," he said. "International has become an incredibly rich area of growth for the company and obviously there are a lot of technical issues that come up with that. We want to have the technical infrastructure that allows us to build around the innovation that we continue to do and provide people with good response time."
With regard to the advertising community, Microsoft's partnership and investment in Facebook may pay off most with regard to Facebook's open platform API play, which allows developers to create applications for its site.
"It gives [Microsoft] a chance to associate with something that is very hot," said David Smith, CEO of Mediasmith, a digital media agency. "A lot of people don't understand the potential impact of widgets. Widgets are potentially the fastest audience accumulation vehicles since television. With Microsoft making this deal, it will bring a lot of attention to the widget marketplace, and it will be advantageous to everybody making widgets."
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