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The Microsoft-Facebook deal has three winners -- the obvious two and MySpace parent News Corp. -- while the biggest loser is not Google but Yahoo.
For Microsoft, this may turn out to be the best $240 million it's ever spent, even if it makes no money on its 1.6% equity stake when Facebook eventually goes public. Extending its ad partnership with Facebook beyond the U.S. to overseas markets locks Google out of the fastest-growing, top-shelf online property.
That will translate into a lot of brokered ads for Microsoft that Google, which reportedly was bidding against Microsoft for the Facebook stake, won't get. Combined with Microsoft's acquisition of online ad firm aQuantive, it gives Steve Ballmer the chance to make good on his quest to climb up the search market share rankings -- provided it can meld the two companies and execute on a focused strategy. It also gives Ballmer the pleasure of finally outbidding Google.
Facebook's founders and investors are also winners, huge winners, thanks to the company's new valuation of $15 billion. Pop the champagne, folks.
A less obvious winner is News Corp., which paid a paltry $580 million for Facebook rival MySpace two years ago. When Rupert Murdoch reportedly offered to swap MySpace for a big stake in Yahoo earlier this year in a deal that would have valued MySpace at around $10 billion, many scoffed. Once again, the brash Aussie has vastly underpaid for an asset.
While Google is an obvious loser, spare your pity. The company has been extending its dominance of the search ad market for two years and in September had a 54% share. Its sales and profits are growing like mad, funding new forays into radio, TV and print advertising, and the partnership it unveiled today with the traffic counter Nielsen to generate detailed data on EchoStar's ad viewers shows how many ways it can use its technology to penetrate new ad markets.
Save your tears for Yahoo, which failed to close a deal to acquire Facebook last year for a fraction of its current valuation. Last month's Web search metrics showed just how real is the danger that Microsoft may catch Yahoo in the search share rankings. Yahoo's share of the U.S. search market last month slipped below 20% for the first time in memory, as it posted growth of just 9.3%, according to Nielsen Online. Microsoft, meanwhile, saw its search traffic rise 72%, thanks in part to its clever Live Search promotions, and now has a 12% share.
With Microsoft getting exclusive access to the 50 million monthly users of Facebook, which is about to begin investing heavily in its business thanks to the latest funding round, Microsoft is likely to keep taking share from Yahoo. What's funny is that some investors still think there's a chance that Microsoft might be interested in acquiring Yahoo. Unless Ballmer's search folks completely blow the opportunity in front of them, and Yahoo sheds at least half of its market cap, that's never going to happen.
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