Microsoft wants Facebook for more than eyeballs

by Toby Ward — After failing in their US$47.5 billion bid for Yahoo, the giant Microsoft is looking more closely at Facebook. While the Wall Street Journal reported that Microsoft bankers have begun to look into a Facebook purchase, neither side has commented on the story (a sure sign that something is afoot).

Facebook in itself is a giant…one that could make Yahoo blush one day. With more than 70 million active users its value was pegged at US$15 billion last October when Microsoft bought a minority stake for a mere US$240 million.

This maneuvering between industry giants stimulates a number of interesting questions, not the least of which is if and how popular “consumer-grade” social software will be embraced and utilized by corporations.

What makes Facebook an even greater value than its investment price a mere eight months ago is its growing popularity – and growing platform. There are only seven websites on the planet that receive more monthly traffic than Facebook – and Facebook only opened to the public 18 months ago after starting as a college-only niche site. Of the sites that get more traffic (Yahoo is 1st, Google is 2nd, YouTube is 3rd), Microsoft’s flagship portal sits in fifth (according to the industry benchmark, Facebook’s viral power is far stronger than MySpace (notwithstanding the music scene), and its growing at a faster clip. I don’t know of anyone that uses MySpace, and yet virtually everyone I know under the age of 45 has a Facebook account. According to, 90% of Canadians between the ages of 18 and 34 are Facebook members (9 million).

Many have speculated that Microsoft’s purchase of Facebook would allow it to draw more consumer traffic and advertisers to its online services, which currently lag behind the competition.

Also of interest is the ever-expanding number of applications using the Facebook Platform. The Facebook Platform is the place where all of those creative nerds build and add those cute little applications that are optional add-ons to your Facebook profile. Popular applications include Fun Wall (2.5 million active users), Scrabulous and that damn vampire biting ‘game.’

There have been more than 23,000 of these applications built since Facebook opened its service to outside developers last year.  While at first glance these seem like nothing but entertaining tools with little business value, they represent a new way to deliver content to users, and owning a piece of that pie could be worth a lot over the long run.  Some developers have already managed to turn a profit through advertising, but the numbers are modest and we’ll have to wait and see for the final verdict on this platform and the best model for the commercialization of these applications.

The other less discussed possible source of value is Facebook’s potential as a platform service inside the corporation (for example, intranet platform). It has the opportunity to be expanded to host ‘intranet’ type functionality and collaboration tools. Create an invite-only Facebook site, sprinkle in some applications and voila – you have the semblance of a corporate intranet. Of course, I said ‘semblance.’

According to Facebook, some 1000 business applications have been created. One application, Feedheads, allows the users to “share the feed items you like with your different friends and networks while also displaying your shared items on your profile.” It also works with Google Reader and NewsGator. So, in other words, think of the collaborative calendar offered by Lotus Notes (or Outlook) where the user can see the schedules of others. Feedheads allows you to see a lot more than their schedule depending on what that user or colleague wants to share (e.g. interesting articles, reports on the competition, meeting reminders, etc.).

Notwithstanding the security challenges of a hosted platform, and those security holes that Facebook has worked feverishly to close (or prevent), the platform is not a real substitute for the intranet which must feature among other things, federated search, application integration, robust security, etc. (At Prescient Digital Media we’re using it as a networking tool -- feel free to join us on the Facebook community Intranet Global Forum).

“The problem for any business considering Facebook is that it’s a determinedly consumer play, to the extent that I don’t think it can ever seriously fly in the enterprise,” says analyst and ZDnet writer Phil Wainewright. “Facebook trades free functionality in return for attention and relationship data — and users give up a lot of their control over that data. Businesses aren’t willing to make that trade-off.

Google is far ahead of Facebook in this respect with the Google App Engine (Google Gadgets), and has already made impressive inroads in the enterprise software business with the Google Mini and Google Enterprise Search. So now you can see why Microsoft is particularly interested in Facebook (more than just acquiring those eyeballs).

Despite its promise, the reality is that in its current state, the Facebook Platform is not a legitimate enterprise or intranet platform and its consumer targeted applications have made only modest profits for its developers. How to monetize Facebook and its ever expanding membership is still up for debate. But Facebook is still in its early days and continuing to evolve at a rapid pace – its potential is huge. Microsoft knows it too, and wants a bigger slice of that multi-billion dollar pie.