has planted the first flag in the battle to acquire Facebook. On Wednesday, Microsoft announced that it has acquired 1.6 per cent stake in Facebook for $240 million, thus valuing the four-year-old social media site at $15 billion. Microsoft has also expanded its advertising alliance with Facebook, and will now be handling sales for the site internationally.
comScore places Facebook as the sixth most visited property worldwide with 73.5 million unique visitors in September. As Facebook opens up advertising to Indian companies, some of which are already making their appearance there, local social networks are going to have a find a revenue model - and fast. And with Facebook's valuation skyrocketing, they are in for some tough competition.
Sanchit Sanga, business director, Group M, Interaction, does not think the deal is over-valued, but is not so sure about the fate of Indian social networks. "Facebook is one of the best social networking sites and social networks will attract a lot of advertising in the next two-three years," he says. Sanga does not think that local players are going to see great increases in their valuation as a result of this deal.
Almost 60 per cent of Facebook's members are outside the US, according to the company. Microsoft is already selling banners on Facebook in the US in a deal that goes on till 2011, but the investment also comes as a precursor to the advertising platform Facebook is expected to unveil on November 6.
Kevin Johnson, president of the platforms and services division at Microsoft, has tried to address this concern. "The fact that you look at just the run rate of users, and if you believe that they have the opportunity to get to 200 million users, 300 million users, which we believe is certainly in the realm of possibility and on the path that they're on, you can figure out when you think that might occur; you combine that number of users with the monetisation opportunities, and you can figure out a fairly modest average revenue per user per year, and you can very quickly get to this level of valuation," he says in the transcript of a conference call.
On the advertising alliance, the companies did not disclose terms of the agreement, but ruled out search advertising from the deal. However, Johnson added, "(The agreement) enables both parties to collaborate as Facebook looks at developing new ad types that are unique to the social experience."
As far as the Indian sites go, it's a long road ahead. Manish Vij, founder and business head at Quasar Media, agrees. "Facebook is writing the rules of social media. However, social networks, including Facebook, need to crack their ad model." Quasar Media has recently added social media advertising to its portfolio of services.
Clearly, Facebook, with its new market value and its upcoming advertising platform, is going to be a force to reckon with. The path ahead for Indian social media sites is then going to be to either go niche or to offer an open platform for advertisers.