Microsoft takes $240m stake in Facebook

Microsoft will take a $240m (£117m) equity stake in Facebook during its next round of financing, valuing the company at a whopping $15bn (£7bn).

The deal gives Redmond a 1.6 per cent stake in the social networking company, notably smaller than the five to 10 per cent that had been talked about in recent weeks. It also flies in the face of recent comments made by Microsoft CEO Steve Ballmer, who brushed off Facebook and other youth-friendly social networking sites as a "fad".

Owen Van Natta, vice president of operations and chief revenue officer at Facebook, said in a statement: "We are pleased to take our Microsoft partnership to the next level. We think this expanded relationship will allow Facebook to continue to innovate and grow as a technology leader and major player in social computing, as well as bring relevant advertising to the more than 49 million active users of Facebook."

In a conference call with press and analysts, Van Natta and Kevin Johnson, Microsoft's president of platform and services, emphasised that this deal is all about the existing advertising partnership between the two companies, which has been going on for over a year now. Facebook founder Mark Zuckerberg, it should be noted, was not present on the call.

Johnson said of the deal, which was signed yesterday: "It's a strong vote of confidence in the innovation that Facebook is doing."

Under the terms of the new agreement, Microsoft will be the exclusive third-party advertising partner for Facebook, and the Microsoft ads will expand beyond the US to Facebook's international presence. So far, the advertising deal does not appear to have expanded beyond its current 2011 expiration date.

Gartner analyst Andrew Frank said: "It's pretty clear that Microsoft wasn't investing in this as an economic move. This is clearly not just about adding a company to your portfolio. Microsoft is looking to anchor itself in the emerging ecosystem of social-media advertising, and getting this partnership with Facebook is a good way to get a structural advantage."

Developing a robust advertising strategy is clearly a pressing issue for Facebook, which has come under scrutiny in recent months for showing only lukewarm signs of long-term profitability. Facebook also confirmed rumours that it will be making a major advertising announcement on 6 November in New York.

Van Natta and Johnson stressed that the deal, at least on the surface, doesn't go far beyond advertising and the "$240m poke". There won't be any integration of Facebook into Microsoft services, nor will Microsoft's non-advertising properties -- such as Windows Live Messenger, for example -- be worked into Facebook.