The Stake: Microsoft and Facebook's 15 Billion Dollars

The stake is the deal, and the deal is the story: the two hundred and forty million dollars that Microsoft agreed to invest on Wednesday, the 1.6 percent of Facebook that it bought, the fifteen billion valuation that stunned the internet economy. The stake is the October 24 announcement, the negotiation that Google reportedly lost. The stake is the number that everyone is discussing this week: fifteen billion dollars for a three year old company with nearly fifty million users and one hundred and fifty million dollars of revenue this year. The stake is the October 2007 story, and the story is the lesson: the deal about advertising, the future being priced in.

The Stake is the subject of this article: what Microsoft bought, what Google lost, what the fifteen billion dollars means, and what the deal says about the internet economy.

1. The Deal on Wednesday

The deal is the announcement, and the announcement is the money: the two hundred and forty million dollars that Microsoft agreed to invest on Wednesday, the 1.6 percent stake that the money secured, the fifteen billion dollar valuation of the three year old social network. The deal is the October 24 fact: the agreement that was announced to the world, the shares that were purchased, the partnership that was expanded, the advertising deal from 2006 that was extended into the future. The deal is the Wednesday moment: the press release, the conference calls, the coverage, the industry that reacted everywhere.

The deal is also the size: the stake that is tiny in percentage and enormous in meaning, the 1.6 percent that values the company at fifteen billion dollars, the stake that makes Microsoft a shareholder in the fastest growing network. The deal is the Microsoft move: the company that bought aQuantive in May, that lost DoubleClick to Google in April, that needed a foothold in the social internet, that found one on Wednesday. The deal is the strategic stake: the alliance that was worth more than the shares, the partnership that was the purchase, the position that was the prize.

2. The Number Fifteen Billion

The number is the valuation, and the valuation is the shock: fifteen billion dollars for a company three years old, with nearly fifty million users and around one hundred and fifty million dollars in expected revenue this year alone. The number is the math everyone is doing this week: the price divided by the users, the users divided by the revenue, the ratios that look absurd and the logic that looks ahead. The number is the record: the valuation that makes Facebook one of the most valuable private companies, the figure that dwarfs the earnings, the belief that is bought.

The number is also the comparison: the fifty million users worth roughly three hundred dollars each, the revenue that is a fraction of the valuation, the gap that separates the present from the promise. The number is the fifteen billion dollar question: the question of what a social network is worth, of whether the users are the asset, of whether the advertising will follow, of whether the future is priced correctly. The number is the stake of the title: the stake that Microsoft bought, the stake that the market is debating, the stake that will be watched for years to come.

3. The Partnership

The partnership is the prize, and the prize is the position: Microsoft as the exclusive third party advertising provider for Facebook, the deal that covers the United States and the international markets, the agreement that extends the earlier 2006 arrangement. The partnership is the October 24 meaning: the advertising that will run on the social network, the inventory that Microsoft will sell, the platform that the company gains, the audience that comes with it. The partnership is the structure: the stake that aligns the interests, the shares that make the alliance real, the contract that binds the two companies together.

The partnership is also the strategy: the advertising that is the business of the internet, the display ads that are the battleground, the social network that is the new territory, the users that are the new audience. The partnership is the Microsoft bet: the company that wants to be the advertising platform for the digital age, that is spending to get there, that is buying the positions Google has not taken. The partnership is the countermove: the deal that gives Microsoft a home in social networking, the alliance that the ad wars made necessary, the stake that the two companies share.

4. The Ad Wars

The ad wars are the background, and the background is the battle: Google that agreed to buy DoubleClick in April, Microsoft that answered with aQuantive in May, Yahoo that bought Right Media in April, the display advertising market that was the prize. The ad wars are the context for Wednesday: the war that has been fought all year, the territory being claimed, the deals that are the weapons, the platforms that are the castles. The ad wars are the October 2007 reality: the internet economy that runs on advertising, the advertising that pays for the services, the services that are free.

The ad wars are also the stakes: the search advertising that Google owns, the display advertising that is still open, the social networks that are the next front, the audience moving there now. The ad wars are the reason for the fifteen billion dollars: the stake that is not really about the shares, the price that is really about the position, the deal that is really about the future of advertising. The ad wars are the lesson of the year: the companies that compete with money, that buy the ground before the battle, that pay the valuations the future demands.

5. The Google Bid

The bid is the competition, and the competition is the confirmation: Google that was reported to have bid for the same stake, the search company that wanted the same position, the negotiation that became a contest. The bid is the October story: the reports that surfaced around the deal all week, the two suitors that were named, the winner that was announced on Wednesday, the loser that went home. The bid is the significance: the stake that two of the biggest companies in technology both wanted, the prize that was worth fighting for, the valuation that the fight itself justified.

The bid is also the proof: the proof that the stake mattered, that the social network was the prize, that the fifteen billion dollar valuation was not a number that one company imagined in isolation. The bid is the Google side: the company that won DoubleClick in the spring, that had the search market, that wanted the social market, that will try again soon. The bid is the Microsoft side: the company that won on Wednesday, that paid the price, that took the position, that already holds the stake that Google wanted, that holds the ground of the ad wars.

6. The User Math

The math is the debate, and the debate is the number: nearly fifty million users, one hundred and fifty million dollars in expected revenue, a fifteen billion dollar valuation, the ratios that the analysts are dividing this week. The math is the per user figure: the roughly three hundred dollars that each member is worth on paper, the figure that sounds enormous, the number that the skeptics quote. The math is the comparison: the revenue that is a tenth of the valuation, the growth that is the argument, the future that is the only way the numbers work at all.

The math is also the question: the question of what a user is worth, of when the advertising will arrive, of whether the growth will outrun the expectations, of whether the fifteen billion dollars will look cheap or foolish. The math is the investor's work: the analysts who model the growth, who discount the future, who argue about the assumptions, who cannot agree this week at all. The math is the Zuckerberg argument: the twenty three year old founder who is betting on the network, who is building the company, who is holding the shares, who is waiting for the future.

7. The Reaction

The reaction is the coverage, and the coverage is the shock: the valuation that the analysts called astronomical, the modest revenue that the company reported, the gap between the two that the headlines underlined all week long. The reaction is the Wednesday evening and the Thursday morning: the television segments, the front pages, the blogs, the chatter, the number fifteen billion that was repeated everywhere. The reaction is the emotion: the disbelief that a three year old company could be worth so much, the respect for the growth, the fear of the bubble, the sense that something big is happening.

The reaction is also the message: the message that social networks are the future of the internet economy, that the users are the asset, that the audience is the business, that the old portals are the past. The reaction is the industry reading: the executives who are studying the deal, the startups who are dreaming of similar numbers tonight, the investors who are looking for the next Facebook everywhere. The reaction is the October 2007 lesson: the deal that changed the conversation, the valuation that set the standard, the week that the internet economy grew up in the public view.

8. The Lesson for the Internet Economy

The lesson is the valuation, and the valuation is the belief: the belief that social networks are the next platform, that the users will be monetized, that the advertising will follow, that the numbers will catch up to the price. The lesson is the October 2007 moment: the moment when the internet economy priced the social future, the moment when fifteen billion dollars became a statement, the moment when the conversation changed. The lesson is the business truth: the companies that are bought for the future, the prices paid for the position, the stakes taken before the real growth arrives.

The lesson is also the Microsoft example: the company that lost one deal and won another, that paid the premium, that took the stake, that chose the position over the price. The lesson is the Facebook example: the company that raised the money, that sold the tiny stake, that kept the giant valuation, that built the future on the belief. The stake is the October 2007 story, and the story is the lesson: the deal announced on Wednesday morning, the fifteen billion dollars that was the price of belief, the social network that is the center of the internet economy.

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