Microsoft-Facebook: 'A True Bubble Deal'

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Microsoft Can Afford the Risk

The bloggers at Microsoft's hometown newspaper also saw a mix of potential and risk. "Facebook is like a prosperous new suburb, a place with lots of opportunities for a developer like Microsoft to build and rent space to companies," wrote Brier Dudley at the Seattle Times. He continued: "What I have trouble reconciling is the scarcity of inventory and the difficulty Web startups have breaking into the major leagues. I guess users are limited in the amount of personal-time inventory they have, and hot sites like Facebook are allegedly where they spend more of that time."

Microsoft's defenders included those who looked at the deal in the context of the company's plentiful cash. The $240 million that Microsoft is paying for its stake is about 1% of the cash that the company has on its balance sheet. With money like that, shareholders likely would be upset if the company weren't taking a few chances to grab growth opportunities for the future.

Over at the snarky Silicon Valley site Valleywag, commentators suggested that Microsoft wasn't the real loser in this deal. Instead, it may be the Internet portals Yahoo! (YHOO) and Time Warner's (TWX) America Online, which had long been the first stop for people on the Web. "Both [AOL and Yahoo] could have owned the social network space through their vast user base and IM and e-mail products. Instead, AOL is laying off thousands, and Yahoo's executive team is shrinking daily," writes Nicholas Carlson at Valleywag. "Want a loser? Don't look to Facebook and Microsoft competitors MySpace or Google. Look to the companies the whole industry is leaving behind."

But the $15 billion valuation is simply tough to ignore for those who witnessed the dot-com bubble burst. BusinessWeek's own Bruce Nussbaum wondered in a blog posting whether Facebook + Microsoft = AOL + Time Warner? "Even Google is trading at "only" 53 times earnings while Facebook, with just $30 million in profits on $150 million in revenues, is trading at 500 times earnings. Wowie. Are we jumping the shark here—or just watching the new world of social networking and advertising evolve? Is this AOL-Time Warner or…just what?"