Microsoft reportedly inquiring about Facebook's availability

Microsoft tipped its hat to Facebook with an alliance in August 2006, will their relationship deepen?

In the wake of collapsed talks with Yahoo, Microsoft reportedly is sniffing around social-networking site Facebook as a possible acquisition target, according to a report in the Wall Street Journal. Neither company would comment on the rumor, and the Journal reported there are no active talks between the two.

Microsoft CEO Steve Ballmer and Bill Gates, chief software architect, have been quoted in the past week saying Microsoft would focus on an independent strategy and won't be replacing the failed Yahoo bid with other acquisition efforts. Mark Zuckerberg, CEO and founder of Facebook, has been steadfast in his refusal to sell the Web site he began in 2004 that now has 70 million users.

A recent profile in Time magazine, which named him one of its 100 most influential people, said Zuckerberg, 23, remains "true to his vision, focusing on building a community rather than on a mere exit strategy -- which is why those buyout offers have been declined."

Ironically, one of the spurned suitors was Yahoo, which made a US$900 million bid for the company in 2006. That same year, Zuckerberg turned down US$750 million from Viacom, asking instead for US$2 billion. The following year, Microsoft invested US$240 million in the company, which then was valued at US$15 billion.

So, what is the attraction to Facebook, whose visitor traffic, as measured by comScore, increased by 240 percent in the past year?

Microsoft tipped its hat to Facebook after entering into a strategic alliance with it in August 2006, an exclusive deal to sell display advertising that runs until 2011. "The consumer assets brought to bear by this relationship will be very hard to match," said Steve Berkowitz, then senior vice president of the online services group at Microsoft.

"We believe that the combination of Microsoft and Facebook strengths will be incredibly attractive to advertisers as they forge more meaningful connections with one of the largest, most engaged audiences on the Internet. Our collaboration with Facebook is about joining our cutting-edge advertising technology and sales force with a true innovator in social networking," he said.

(Editor's note: In February Berkowitz said he would step down and leave Microsoft in August.).

It is not clear how owning Facebook would improve on those benefits. In fact, the WSJ article questions whether Facebook can become a major source of online advertising, noting that its efforts to expand advertising contrast with the fact that half its revenue last year came from the partnership with Microsoft.

News of the recent talks has not been well received on Facebook. A new site recently popped up called "Microsoft Buyout Boycot (sic)," with a description that reads, "Facebook is fine the way it is. We don't need Microsoft trying to buy it out and making changes."

There are a handful of other sites -- "Facebook isn't for sale" and "Stop the buy-out of Facebook by corporate marketers and protect our privacy" -- that also rail against an acquisition.

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John Fontana

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