Is Microsoft Now Eyeing Facebook?
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Like a spurned Hollywood starlet, the list of suitors to which Microsoft has been linked to in the past 10 days since it walked away from its intended marriage to Yahoo is growing by the day, with AOL, Facebook and MySpace among the better known candidates.


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But even if that list was to be believed, not one of those companies could provide Microsoft with the same level of economic sustenance to help in growing its online business like Yahoo.

Then again, what else is new for Microsoft? Although it is a global leader in operating systems and software, it has consistently failed to become a dominant force in the internet marketplace.

The company’s online division is slated to make sales of some $US3.3bn this year, roughly equivalent to about 5.5 per cent of its total sales, however at the same time it will also make an operating loss in this division of somewhere in the region of $US1bn.

Thus in the context of the $US50bn annual global online advertising market, Microsoft, remains a distant third in the marketplace.

So then why was Microsoft chief executive Steve Ballmer unwilling to pay the extra $US10bn for Yahoo, is still a mystery.

 

Yahoo may well be struggling against the might of Google, however compared with Microsoft’s online record, it is positively shining.

And why did Ballmer throw it all away with such ‘gay abandon’ as some would call it?  Are things getting that tight over at Microsoft that paying 10 billion for a company that could turn around its online losses virtually overnight seem frivolous? Or did Ballmer know something more about Yahoo and what it is really worth in context to its battle with Google?

Although rumours abound that Ballmer will eventually return to the negotiating table, for now he has gone back to building the online division through what he called “select investments and organic development”.

But looking at it from another point of view, a new deal with Facebook would seem to make the most sense of all the new takeover rumours. Microsoft already has a 1.6 per cent stake in the social networking business via its $US240m investment, and has an advertising outsourcing deal with it valid until 2011.

 

Facebook is a market leader and there are numerous ways in which Facebook and Microsoft’s MSN and search platforms could be nicely integrated.

However, whether Ballmer attempts to try and gobble up Facebook or not, many analysts have said that he needs to let his plan be known quickly, as the Wall Street natives are starting to get restless.

Otherwise, as one report put it, “his decision to walk away from Yahoo will be seen as him having cut off his nose to spite his face”.