After talks with Yahoo failed, the news is that Microsoft Corp. informally approached social-networking Web site Facebook Inc. to gauge its interest in selling itself to Microsoft.
Microsoft's investment bankers recently contacted Facebook as it looked likely the Redmond, Wash., software company might back away from buying Yahoo. Though there is no active discussions between the two, it is unclear if closely held Facebook would consider selling. The approach was previously reported on the AllThingsD.com Web site, owned by News Corp.'s Dow Jones unit, publisher of The Wall Street Journal.
Yahoo however continues to face challenges of its own. It is said tha Google Inc. executives are now thinking whether to pursue a search-advertising deal with Yahoo.
Separate discussions between Yahoo and Time Warner Inc. also continue. However, they say there is less urgency to reach a deal now that Microsoft has exited the stage. The two sides are discussing combining AOL and Yahoo.
In a letter to Microsoft employees (after failed talks), Microsoft Chief Executive Steve Ballmer said the company would explore acquisitions and increased investment in its own online services.
Facebook is a fast growing Web service that has become a hub for all kind of consumers. Last year, Microsoft bought a 1.6% stake in the portal, valued at $240 million. It then valued Facebook at $15 billion.
Mark Zuckerberg, Facebook's founder and chief executive, has resisted the idea of selling his whole company. He recently made several high-level hires like Chamath Palihapitiya: VP-marketing & operation, Gideon Yu - CFO etc. that suggest he intends the company to remain independent. Facebook would still faces possible fallout from the weak broader economy, which could pressure online ad based ventures.
Facebook's main attraction for Microsoft is its rapid growth and popularity. In March 08, Facebook had 109.2 million visitors which is a 240% increase from March 2007, according to comScore Inc and expects revenue of $300 million to $350 million this calendar year (which is approx $150 million last year). By comparison, Microsoft's Web sites attracted 563.2 million visitors world-wide in March which is just a 7% increase from the year ago.
The big question for Microsoft is whether Facebook can become a major source of online advertising. Facebook has tried to expand online advertising, but half of its revenue last year came from a partnership with Microsoft. After its investment last year and a deal struck in 2006, Microsoft has an exclusive arrangement to sell display ads on Facebook through 2011. Acquiring Facebook might not significantly add to Microsoft's inventory of space in which to show ads across the Web.
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