Microsoft buys a stake in Facebook

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Following weeks of discussion and speculation over a potential bid for Facebook, Microsoft has today announced a deal that will see it take a stake of 1.6 per cent, valuing the social networking website at $15 billion (£7.5 billion).

Under the terms of the deal, Microsoft will pay $240 million (£120 million) for the stake when Facebook pursues its next round of financing.

Talks between the two companies about an equity stake first emerged last month, and the announcement has cemented the view of Facebook's 23-year-old founder Mark Zuckerberg that the Facebook site, which grew out of a university alumni web service, is worth in excess of $15 billion.

"We are pleased to take our partnership to the next level," said Owen Van Natta, Facebook's chief revenue officer. "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 nearly 50 million active users."

In addition to taking a stake in Facebook, Microsoft has also expanded its advertising relationship with the site, suggesting the deal, coupled with the small equity stake is far more about bolstering advertising revenue and market share than Microsoft trying to use Facebook to expand its MSN web business, which continues to lag behind Yahoo and market leader Google.

Under the expanded strategic alliance, Microsoft will now be the advertising platform partner for Facebook globally, selling advertising for Facebook internationally in addition to its existing 2006 deal to sell ads in the US. The deal is important after Google landed the advertising contract for rival social networking site MySpace.

"We have partnered well over the past year and look forward to doing some exciting things together in the future. The opportunity to further collaborate as advertising partners is a big reason we have decided to take an equity stake, and is a strong statement of our confidence in the long-term economics of this partnership" said Kevin Johnson, president of the Platforms and Services Division at Microsoft.

With 24 million active users worldwide, Facebook has been the source of frenzied investment speculation all year. In 2006 the company was reported to have turned down a takeover bid from Yahoo that valued the business at just $2 billion.

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