Microsoft CEO Steve Ballmer paid “lip service” to a Yahoo! deal and cleverly set the stage for acquiring Facebook, during his keynote at the Digital Hollywood Media Summit.
Yahoo!’s stock price shot up on the news of his comments, but I think the press and the markets are missing the big picture: Microsoft’s is using the “potential Yahoo! deal” as a red herring with investors. Ballmer is using Yahoo! to convince the market that Microsoft needs to buy Facebook to compete with Google, and to set a price floor of 50 billion for the acquisition. Microsoft may be facing a situation where Facebook usage grows so fast that its costs skyrocket, creating a cash crunch, and in this difficult fundraising environment it’s best bet is just to buy Facebook.
I reached this conclusion after analyzing Ballmer’comments and talking to Microsoft execs at the media summit. Here’s my story from the conference:
Microsoft would spend 47 billion dollars for Yahoo!’s users, not Yahoo! technology. “Small companies you buy for technology, big companies you buy for the customer base.” Ballmer explained. Defending his Yahoo! bid, he said there is still “a compelling set of economics that underpin the idea of a search partnership.”
Microsoft targets “returns to scale” when acquiring a company with a large number of users and advertisers. “The more users you have, the more you know about people’s interests” Ballmer said, and this data is something they could gain from Yahoo!. Ballmer then pitched Microsoft’s ability to use online behavioral data to create targeted advertising and personalized experiences.
“Our goal is to play the relevance game as well as Google.” Ballmer said. Microsoft can rise to the challenge because of its many consumer Internet technologies, online businesses and nine billion dollar R&D budget. What he didn’t didn’t say is that Microsoft still needs to buy a big user base in order to feed this engine.
Ballmer needs to make a bold move. The “Google threat to Microsoft” has been hanging over Ballmer’s head for years. The Google threat emerged on Ballmer’s watch as CEO, and this is the first year since Bill Gates officially retired. Will Ballmer’s defining moment be to acquire Facebook, not Yahoo!?
Reading between the lines:
- Ballmer is pitching Wall St. on the fact that Microsoft needs to buy online users
- Yahoo! is now just a red herring being used to set a 50 billion price floor for Facebook
- Microsoft’s acquisition of Facebook is imminent
Additional Media Summit Insights
I don’t know. Maybe “you just had to be there”…You decide:
1) No Mention of Facebook at a Digital Media Conference Keynote?
In Ballmer’s keynote interview with Steve Adler, Editor-in-Chief of BusinessWeek, the two executives stayed far away from discussing Facebook. Wall Street reporters only heard “Microsoft Yahoo! Deal Still on Table!”.
Ballmer and Adler mentioned they spoke in advance about what to discuss on stage. I was the ears for you all in the audience, and their silence about Facebook was deafening.
- No mention of Facebook? Hello… its a digital media conference!
2) Facebook Skips Microsoft Panel
Facebook executive Richard Cooperstein, Head of International Business Development and Strategy, skipped a panel where he was scheduled to speak alongside Brian Hall, Window’s Live General Manager. (Note: I covered Ballmer’s big CES announcement about the Facebook / Windows Live partnership).
- Was Facebook avoiding a PR slip up from an awkward audience question?
3) Facebook on the mind of Microsoft Execs
Microsoft executives I chatted with “offline” at the Media Summit think an acquisition is likely. Note: They didn’t say it is immediate, but saw acquiring Facebook as a matter of course for Microsoft.
One Microsoft exec even cited Facebook’s out of control costs, saying Facebook’s success as a photo sharing application creates unbelievable hosting costs, and that Facebook’s movement toward video will take Facebook’s bandwidth costs beyond what can be covered by the funding provided by Microsoft. He left it at that…
- Companies don’t announce takeovers early, it raises the price of the target…
Am I hearing things?… Do you think Microsoft is about to buy Facebook?
Editor’s Note: We wrote about the potential for an acquisition back in December of last year. Additionally, this post does not necessarily reflect the views of the editor or AllFacebook only the author of this article.
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Interesting conspiracy theory.
Comment by Facebook User — March 27, 2009 @ 8:17 am
I really hope they don't. I prefer Facebook the way it runs now; and if Microsoft purchased them; well, I really don't like the way that Life Profiles and such work. Facebook is leagues ahead in that department.
Comment by Navarr Tethyr Barnie — March 27, 2009 @ 8:20 am
can they afford it? my guess is facebook would ask for more money then it is worth. might be a better move to buy twitter who is struggling.
Comment by Noah David Simon — March 27, 2009 @ 8:23 am
I am bidding $60 billion to buy Facebook – (pending a bailout from President Osama)
Comment by Alan Weinkrantz — March 27, 2009 @ 8:28 am
Nice theory but there is no way facebook would go for $50 Billion.
Comment by Jim Littlefield — March 27, 2009 @ 8:34 am
@Alan: Not to mini-mod; but I do believe that was entirely unnecessary
Comment by Navarr Tethyr Barnie — March 27, 2009 @ 8:39 am
NO.
why would ballmer want to set a "price floor" of $50bn? that makes absolutely no sense. typically if you are the one buying something, it's in your best interest to get a low price of acquisition…not an insanely high one.
facebook is worth maybe, maybe $500m tops. it would not be in microsoft's interest to pay a 100x markup for a company that can't make any money and whose users are completely willing to jump ship the moment their free ride ends.
and besides, MS already owns a chunk of facebook as an investor and they can just wait until FB burns through all their money and gets desperate and then buy them for a song.
Comment by gilltots — March 27, 2009 @ 8:47 am
Alan, I'll top you and go $65 billion. I took await decision of my application for bailout money
Comment by Don Philabaum — March 27, 2009 @ 8:49 am
No matter how useful Facebook is, I would stop using it, if Microsoft bought it. And I know many others. But may be that's good. Something else, even better would develop, if that were to happen.
Comment by Mark — March 27, 2009 @ 9:01 am
'scuse me, everyone. I'm just here to throw another log on this here conspiracy fire.
Nick, have you read the most recent status update from Facebook's fan page? It could definitely be used to support your theory:
Facebook: "We’ve seen a few groups crop up on Facebook suggesting that we might require people to pay to use the service. We’re not sure where these rumors came from, but Facebook is a free service and we intend to keep it that way."
http://www.facebook.com/facebook
Now, groups that are paranoid about Facebook eventually charging a usage fee have been around for ages. But the most prominent one in my news feed recently (because of my less intelligent friends joining) has been:
"We Will Not Pay To Use Facebook. We Are Gone If This Happens"
http://www.facebook.com/group.php?gid=54350527492
This group has over 3 million users. In the group description, the first line is:
"Apparently if Facebook gets sold then theres a major possibility that it will turn into a "Paysite". This is just stupid!"
So, to sum up…
Rumours abound that Facebook will become a paysite when another company buys them
+
Recent possibility of Microsoft purchasing Facebook
=
Pre-emptive move by Facebook to stem negative reactions and panic from its userbase about the purchase.
Comment by Dominic Grant — March 27, 2009 @ 9:13 am
Apologies for addressing my previous comment to Nick. I just noticed the author of this post is Will M.
Comment by Dominic Grant — March 27, 2009 @ 9:19 am
In my opinion, Microsoft won't be able to buy Facebook, because Mark Zuckerberg doesn't want to sell it (yet). The whole strategy of Facebook is around attracting more and more users and they are far away from the peak.
And most important: Mark is not interested in big amounts of money, but in the power of developing the largest social network like HE wants it to be. Microsoft might buy another share of Facebook, but not enough to gain full control.
Comment by Sebastian — March 27, 2009 @ 9:25 am
Can you imagine if they did? Eulas on every page!!! The licence keys……and is that per seat? per user? $$$$$$$!!
Then just when you get to your friends page….a popup…"Microsoft IIS server has exceeded connections …"
HAHA!!!
They already have made a mess of web technologies because of their inability to see past the $$$$$$$!!
Comment by Mik McManus — March 27, 2009 @ 10:48 am
If I were at Microsoft it would make good business sense to me to try and acquire a large social media based site to gain a larger user base online. If you look at integrating Windows Live services with Facebook and selling focused advertising space to companies, targeting web users based on their habits, preferences and profiles. Then Microsoft would make a massive leap forward by purchasing Facebook…
Let’s face it, love them or loath them, Microsoft is by far the biggest player in IT. The Google corporation machine is trying to assert their massive web user base, so the easiest way, and most economically viable way to respond, is for Microsoft to purchase its own user base…With Facebook and twitter, I think Microsoft would get not only a massive user base, but a user base that will continue to grow as Social Media grows…..Integrate their Windows Live services, and you add real value to the mix….
I will keep watching and see what happens…
Comment by Andrew Smith — March 27, 2009 @ 11:52 am
If Microsoft bought Facebook I for one would leave it immediately. I'm sure I'm not alone. Everything they touch turns to crap.
Comment by bb — March 27, 2009 @ 12:05 pm
I think they want to host Facebook on Azure
Comment by Facebook User — March 27, 2009 @ 12:45 pm
50 billion? With a "B"??? No. Won't happen. I'm more likely to grow a set of DD's
Last I saw (this morning) FB was looking for 100 million more in financing (to pay for servers and such). Is it the 90's again? We're basing some crazy-assed valuations on traffic/users, not revenue?
Microsoft may buy them, but never for 50 billion. Their last investment valued FB at 15 billion which was ridiculous… Why would their valuation increase so dramatically? THey have a few more users, yes. But they still aren't efficiently monetizing them.
Seriously people… look at AOL, look at webvan, look at etoys, look at excite@home… crap, look at hundreds of other companies from the late 90's… Let's take away some learnings from that experience…
Comment by jack — March 27, 2009 @ 12:51 pm
Get ready for two Facebooks:
Facebook Live Silver: Free access to your profile and 100 friends profile page. Photos, videos, wall writing, and other services not available.
Facebook Live Gold: $50, access to unlimited profiles, apps, photos, videos, and everything else you currently love about Facebook!
And don't forget, all versions of Facebook Live come with the new Downtime of Death, otherwise known as DTOD!
Comment by John — March 27, 2009 @ 1:07 pm
I think this post on Techcrunch might change some things!
http://www.techcrunch.com/2009/03/27/facebook-def...
Comment by Jackie — March 27, 2009 @ 1:37 pm
Wow, there actually *is* something that could get me to leave Facebook.
Comment by lizriz — March 27, 2009 @ 3:20 pm
A Microsoft owned FB would be suicide for the site.
I for one would say good bye and good riddance.
Nice platform but it's against my morals to support M$ even in so called free offerings. In a Microsoft world it's always user pay.
Comment by linuxgeek — March 28, 2009 @ 11:21 am
Very interesting…Microsoft buying Facebook and Google buying Twitter!
If this happens WOW!
Tony Beach
Comment by Tony Beach — March 28, 2009 @ 11:41 am
I think it would be a good ideal to buy fb and twitter
Comment by keenan — March 28, 2009 @ 1:49 pm
If Microsoft does buy it FB will never be the same. It will change and not for the better.
Comment by Jeff Ryan M — March 29, 2009 @ 1:11 am
I know, Steve's papa and Bill's papa were enemies.
Comment by venkatesh — March 29, 2009 @ 8:36 am
You paranoid people. Let us not forget that Microsoft has been alive and thriving since the 80's – Facebook doesn't even have a revenue model.
I'd be much, MUCH happier if MS bought Facebook – MS can actually afford the infrastructure and tech support, without doing stupid stuff like Beacon, or Immortal Profiles.
As for Live integration? Bring it on. Most of the world uses Windows already, so bringing Facebook into the picture is the best possible move they can make.
As for the price – they're paying for the userbase, not the technology. $50bn sounds fair that's <$300/active user – imagine the marketing ROI.
~ Wogan
Comment by Wogan — March 30, 2009 @ 4:53 am
There shouldn’t be monopoly of big market Giants only and small players shouldn't sell their products for few $ to big players and loss their share in market and also their web presence. Otherwise fruitful competition would be discouraged. Microsoft has thousands of built-in problems, so after acquiring face book, these problems would be inherited, and perhaps Face book won't serve its purpose the way it is serving now.
Comment by Atta UrRahman — March 30, 2009 @ 10:47 pm
MS buying Facebook? Its the stuff nightmares are made of.
Comment by Tunji Oloruko-oba — March 31, 2009 @ 1:57 am
Facebook would be as much a technology problem as yahoo! would. since both are build primarely in php and use linux as as platform. They couldn’t port it even if they wanted.
Comment by Peter — April 8, 2009 @ 6:02 pm
I hate ppl with this anti-microsoft idea.
What did they do to you ?
They create software and sell them? Isn't it their jobs?
Don't you go to the grocery store and buy groceries from different manufacturers? Do you complain about it? Do you hate them? I don't think so…
If you don't like Microsoft don't buy their stuff. Move to Apple. Move to Linux (good luck on this). Or create your own SO and stop bitching around.
The world we living in is based on business and it's not Neverland or another imaginary kid world. So get used to it.
If Facebook is a good investment for them, they will try to buy. If they charge and you cannot pay, move on. There's plenty of free social networks around. Pick one.
If they don't charge and leave as-is, why quit? What the owner of the software you use interferes with your life ??? Will your Facebook experience change because the new owner is called Steve Ballmer (or BillG or whatever)???
People complains so much about Microsoft and forget to read the news and see the millionaire donations they do here and there. Or the "I'm making a difference" program that already raised 2 million to help entities that helps ppl.
How much open-source gave to communities?
Folks, just THINK.
Comment by Bruce — April 12, 2009 @ 1:12 am
@Bruce – You must not be a developer…
Comment by Robin — April 17, 2009 @ 12:56 pm
Facebook is worth about 16 Billion at the moment not 500ml
Comment by Alex — June 10, 2010 @ 6:02 am
Good. Facebook is so annoying. A stupid company like MS is sure to kill it!
Comment by ad — July 14, 2010 @ 10:45 pm
If Microsoft does buy it FB will never be the same. It will change and not for the better.
Comment by jame1990730 — September 29, 2010 @ 9:34 pm
I think Microsoft is stupid. They could make a social site built on the Os. Once you install windows you already are making a social site as you install the software. So easy.
Comment by Mark Ryan Smiley — July 3, 2011 @ 8:26 pm
MicroSoft is very strong in the enterprise segment and SME segment. But on the consumer front segment they are prettly lame. Except for the hotmail acquisition, nothing in last decade is impressive from MS. This deal gives them users with a big thumbs up. Users at the end of the day with smart & innovative online advertising will justify the increasing cost per click for advertisers. Today’s MS lacks users, with this deal, along with a long term Ad deal with Facebook, they can save some face. But the big value is not with Facebook, but with their buy out of Aquanitive. If they can smartly build on aQuantive’s distribution and client consolidation, then you will see a good come back for them.
Comment by Erika Wilson — August 2, 2011 @ 5:42 am