aiimALERT: Facebook and Microsoft - Social Networks are Big Money

PALO ALTO, Calif. and REDMOND, Wash., Oct. 24 /PRNewswire-FirstCall/ -- Facebook and Microsoft today announced that Microsoft will take a $240 million equity stake in Facebook's next round of financing at a $15 billion valuation, and the companies will expand their existing advertising partnership. (see full press release for further details)

The world of social networking continues to heat up, and it's 2003 (and the dot-bomb) all over again. In 2003 I had been fending off invites to join LinkedIn, Friendster, Orkut, OpenBC (now Xing), Spoke, Ryze, etc. - and finally decided I should take a peek into the world of personal/professional social networking. After 3 months and conversations with nearly 200 users of such systems at the time, I was convinced this was serious business, and we would see growing ramifications in roughly 5 years. Here we are 4 years later, and LinkedIn is nearly one of my daily tools (see the post "100th Post, 1000th network connection" last month), and as with many people already steeped in social networking and what that can do for you on a personal and professional level, I finally made the jump onto Facebook as well. It's the wild west, but probably not as strange as you're thinking, if you haven't actually used the site and it's thousands of apps.

Is Facebook a fad? Who knows. Did Microsoft over pay for such a paltry percentage stake? Perhaps. This investment makes the earlier run of social networking investment in the 2002-2004 timeframe look like chump change by contrast. Entire companies were bought or fully funded by investments much smaller than this - and in this case $240 million buys a 1.6% stake. Turning down the offer a $1 billion dollar acquisition offer is certainly seeming like a good call at this point.

But through all of this, realize that the name of the game in this investment is all about the eyeballs and yes, online advertising - ironic given the "web 2.0" crowd tends to think of the race for eyeballs as "so web 1.0." Microsoft has been a partner with Facebook since the advertising on Facebook first came about, and as it turns out, that's a pretty brisk business to be in. After all, Google makes the vast majority of it's revenue from advertising one way or another, and Microsoft's earlier acquisition of aQuantive for $6B (a significant player in the digital marketing world), the times they are a changin'. Let's not forget that Microsoft's acquisition of Hotmail (eons ago) was because of it's viral ramp up in user adoption. It wasn't the best, it wasn't the first, but it took off dramatically, and Facebook has certainly had similar characteristics, although it's far beyond a web-based e-mail platform.

From a user and business perspective, if no other sign has piqued your interest in this thing we now call "social networking" (and by the way, have for several years now) - it is time to take a serious look. It costs you nothing, it may open your eyes to connections you wouldn't have thought possible (as well as bring out the crazies from time to time), but how long can you afford to stay on the sidelines and not do something with a network such as Facebook?