In October 2007, Microsoft (msft) agreed to buy a 1.6% stake in Facebook at a $15 billion valuation. Reaction from many quarters was withering:
- PC Mag: "Whoever said the company is worth that much must be smoking something, including Microsoft, who paid millions for a tiny stake in it."
- ValleyWag: "It's Microsoft executives, driven mad by Google and MySpace envy and determined not to miss out on the social-networking trend, who seem, well, a bit off."
- All Things D: "Silicon Valley can now be considered to be at Delusional Level Red. Or green, given all the cash that is being shoved in Facebook’s direction now."
- Forbes: "[Microsoft] forgets we are not 'eyeballs,' we are people. We aren't talking about column inches or gross rating points. We're talking about our reputations and the risks--privacy issues aside--of their inflation and potential devaluation. Even if Facebook could take that valuation and compensate us $15 billion for the use of our reputations, we would have to split that among 58 million other people. That's $258.62 per person. Are your friends and your reputation for sale for $258.62? We thought not. Facebook isn't worth $15 billion, either."
Well, it now seems the criticism was way off base.
Not only did the deal help Microsoft best Google for an ad revenue-sharing agreement with Facebook (i.e., strategic value), but the price seems like a bargain in light of Goldman Sachs agreeing to invest at a $50 billion valuation (i.e., financial value).
So let's give credit where credit is due. Not to Microsoft in general, but specifically to CEO Steve Ballmer.
Shortly after the deal was signed, I had a conversation about it with someone inside the Microsoft brain trust. He said that he and many others had opposed the deal, arguing that $15 billion was simply too high a price to pay (even if the actual investment dollars -- $240 million -- were chump change for Microsoft). But Ballmer was insistent, pushing forward over each and every objection.
I'm sure that the Facebook transaction details were worked out by member's of Microsoft's M&A team -- a busy group that year, including a $6 billion buy of aQuantive -- but the deal "lead" was unquestionably Ballmer. When he steps up to give his keynote speech later today at the Consumer Electronics Show, perhaps he should begin by taking a bow.