Content Matters

Like a cheerleader trying to decide whether to go to the prom with the quarterback or starting point guard, Facebook is expected to decide this week whether to take a significant investment from either Microsoft or Google.

While Yahoo began its courtship of Facebook more than a year ago with an acquisition offer rumored to be in the $1.5 billion range, the NY Post reports that the latest offers are for a 5-10% stake in the company for between $750 million and $1.5 billion.  In other words, the valuation has gone up 10x in about a year, to $15 billion.

A month ago, it seemed pretty likely that Microsoft would take a 5% stake for a then-rumored $500 million.  However, Google appears to have gotten involved and raised the stakes.  As MLB agent Scott Boras has shown, even the appearance of a second suitor can significantly increase the deal terms.  According to the Post article, Google has looked to raise the price in an effort to scare off Microsoft, but that the Redmond-based giant has stayed in the game for now.

According to Henry Blodget, either way, Google has won the war.  Microsoft needs the Facebook relationship much more than Google does.  While social nets have yet to really monetize their traffic, Facebook is today the 7th most visited site and is those visits are taking away from display ad traffic on traditional portals.  Assuming the bids are truly comparable, it would seem that Google would be the more attractive partner for Facebook.  If nothing else, it will minimize the likelihood of Google deciding to compete against them.  Meanwhile, if Microsoft does win, they will have overpaid and probably made other concessions to win the deal:

Because Microsoft will overpay, too--wildly--and won't get much for its money.  Facebook will no doubt extract other concessions (great pricing on ad sales, full control, etc.), and then will probably take Microsoft's money and turn its back.  So Microsoft will lose that way, too.  And Google will do just fine without Facebook.