Microsoft invests $240M in Facebook, as Facebook develops ad product

Updated

Microsoft has snagged a deal to invest $240 million into popular social network Facebook, valuing the company at $15 billion — a 1.6 percent stake. Microsoft has also agreed to advertise on Facebook in international markets.

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We listened in on a well-staged official press conference call that the two companies did this afternoon — you can read most of the same information in the press release. Here are some highlights: Microsoft needs the international ad agreement because Facebook says nearly 60 percent of its 50 million active users are based outside of the US. Facebook also claims to be gaining 200,000 new users per day, worldwide.

The two companies will work together on new forms of advertising, including data from Facebook — as we’ve mentioned below.

Among things this money will be spent on: Facebook expects to hire a lot more engineers, doubling the number of employees to over 700 next year.

The announcement today did not deal with any joint efforts concerning integrating Facebook data into Microsoft products, or other non-advertising plans the companies may have.

Any other investors in the round have not been disclosed.

Yesterday, reports also surfaced that a new Facebook ad product, apparently trademarked “SocialAds,” will be previewed November 6 to some of Facebook’s closest advertisers. Conde Nast, Nike, Apple, Sony, General Motors, Coke, CBS, Chase and Verizon have paid $300,000 each to be “Landmark Partners,” meaning they are the first advertisers to try SocialAds, according to these reports, none confirmed by Facebook. When asked for comment, a Facebook spokeswoman responded: “Facebook does not comment on speculation or rumor.”

The idea of the deal is to focus on “demand fulfillment” by taking advantage of Facebook users’ high engagement with each other, Facebook VP of product marketing and operations Chamath Palihapitiya was quoted telling FastCompany.

Facebook has a unique set of data about users that may be able to provide more relevant targeting, more often, possibly putting Facebook in competition with Google’s Adwords and AdSense programs.

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Facebook’s emergence into a major Internet player has been compared to Google’s rocketship rise a few years ago. Google’s search and other offerings have made billions of dollars in profit by showing related ads next to web pages and users’ search results. Facebook, growing users 3 percent per week, seeks a similar profit engine. Will SocialAds be a the answer?

Seth Goldstein, CEO of social network ad network SocialMedia, said his data shows social context for advertising drives viral adoption similar to how social context drives viral adoption of Facebook app’s. Scott Rafer, CEO of a third party application Facebook ad network, Lookery, said that other emerging yet small third-party Facebook ad platforms such as fbExchange and SocialMedia are effective at generating referrals — moving users between applications — but haven’t been applied to straightforward traditional advertising. As for his own company, Lookery, it would like to develop an ad product that tries to use age, sex and location to target ads. In the future when that product is released, Rafer would like to avoid using personal and interest information — hobbies, quotes, movies, books, music, activites, etc. — to target ads because it is not useful determining users’ “intent,” meaning where they are most likely to transact, because it lacks timeliness. Note our accompanying story today about Facebook’s opening of its mobile platform.

With Microsoft winning the investment in Facebook, it beats out Google, which was reportedly also negotiating to make an investment int he company. After the Microsoft-Facebook announcement, the Google founders suggested Microsoft overpaid: “Some of our competitors might be willing to spend a lot of money to secure deals. We are not willing to participate in those types of transactions,” Google co-founder Sergey Brin said following a meeting with financial analysts. Chief executive Eric Schmidt didn’t refer directly to Microsoft, but said: “Overbidding [by rivals] is a constant since I’ve been in the company. It always upsets me.”

[Disclosure: Doug Sherrets owns a small number of Facebook shares.]

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Eric Eldon contributed to this article.