• BRAZIL

Friends With Benefits

2007-10-25

While Microsoft may have surrendered this week to the European Union's 2004 anti-trust order to share Windows proprietary code with its competition, the company was already shifting to incorporate another realm of revenue from computing. Beating rivals Google and Yahoo, Microsoft paid $240 million to Facebook garnering 1.6% equity in the social network and the right to deliver ads on the social network now valued at $15 billion.

Brad Stone observes in the NY Times

The high valuation also represents a belief that Facebook is creating an important new operating system — one that exists on the Web instead of on personal computers.

Stone's article illustrates the fascination some in Silicon Valley have with the geography of social networks.

“Once a social operating system takes over a country it’s like it becomes the native language of that country,” said Lee Lorenzen, a venture capitalist who is bullish on Facebook and notes that Google’s Orkut dominates Brazil, Friendster dominates the Philippines and Facebook is becoming the dominant forum in the United States, Canada and Western Europe.

To some observers, like British developer Ben Metcalfe, the $15 billion valuation is a piece of crafty theatre.

With $40 billion in current assets, Microsoft seems for now not to want to launch its own social network war to reap benefits from the digitally connected, as it did with Internet Explorer when faced with the Netscape browser's 85% market domination in 1995.

By way of comparison, Novell paid $210 million to acquire German Linux company SuSE and $40 million for Ximian to enter the open source arena in 2003.