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The news yesterday that Microsoft won the bidding war for an ownership slice in Facebook included a widely reported line:
The two companies said on Wednesday that Microsoft would pay $240 million for a 1.6 percent stake in Facebook. The investment values Facebook, which is three and a half years old and will bring in about $150 million in revenue this year, at $15 billion.
But, the $15 billion valuation line is wrong because it over-simplifies what Microsoft actually purchased. In addition to the sliver of equity, they received exclusive rights to manage FacebookÃ¢â‚¬â„¢s international ad network. That nicely complements the deal Redmond already has to serve up FacebookÃ¢â‚¬â„¢s domestic ads. Microsoft was willing to pay a significant premium for control and cooperation with FacebookÃ¢â‚¬â„¢s ad network, and to block Google from the same. ThatÃ¢â‚¬â„¢s economic value behind the deal, and its fairly unique to MicrosoftÃ¢â‚¬â„¢s strategic business plan. ItÃ¢â‚¬â„¢s silly for the media to extend the $240 million Microsoft paid for a 1.6% share in a linear way to $15 billion. Facebook is worth an awful lot of money, but it probably isnÃ¢â‚¬â„¢t anywhere near $15 billion. At least not yet.Ã‚Â