Can Microsoft Handle Facebook?

So, Microsoft (MSFT) has bid over Google (GOOG) for Facebook shares. I should be pleased, right? After all, I've ragged on Microsoft repeatedly for letting Google outbid it in the past, and here, finally, Microsoft went deep and won the deal.

If that's such good news, why do I feel so uneasy? Some might say that it's because I'm biased against Microsoft, that whatever Google does is good, and whatever Microsoft does is bad.

Hardly. I've beaten up on both companies many times in the past, albeit for different reasons. Google is far from infallible, as I've written here before. It makes poor acquisitions too.

But I'll be more specific. Google's engine empirically does a better job of monetizing content than does Microsoft's, which is well established. Assuming so, one would expect Google to be able to bid more, economically, for a pure content site (as opposed to an ad network like Doubleclick) than would Microsoft.

But it didn't. Why not? Obviously because it didn't see the same strategic value that Microsoft did on top of the economic value of additional ad-ready content at Facebook.

So, it really comes down to this: Do you believe that Microsoft knows its own strategic interests, and that it can act rationally and appropriately in their defense? Ten years ago I might have said yes, but today I have a much harder time. So when it comes to defending a large strategic premium over a credible competitor with a better basis for economic valuation, I have a hard time.

Comments

[Tom B:]

They can handle Facebook about as well as they handled HotMail; that is, they'll pretty much ruin it.

2007 Oct 26 09:04 AM

[Josh Thompson:]

Microsoft demonstrated to Facebook management they had more expertise to develop infrastructure than Google. Microsoft went
deep into the details of the expertise they could offer Facebook.
If it were only a matter of writing a check, Microsoft would win
every time. Your argument doesn't hold up, ironically there's more
to it than a check.

2007 Oct 26 11:01 AM

[Tom B:]

Seems to me Google could just spend 10 minutes whipping up a Facebook clone. When MSFT screws up Facebook, Google will be there waiting.

I think GOOG suckered MSFT into over-bidding.

2007 Oct 26 11:12 AM

[Josh Thompson:]

Microsoft went deep into the details of their expertise. Microsoft demonstrated to Facebook they had more expertise to offer. If it were only a matter of writing a check, Microsoft would win every time. Your argument doesn't hold up. If all it took to successfully compete was a big checking account than inherited wealth would never be lost.

2007 Oct 26 11:25 AM

[Tom B:]

I'm confused. What MSFT expertise are you referring to? The willingness to break the law to attack rivals (Netscape)? The ability to frighten (all those frivolous "threats" against LINUX based on unspecified [and imaginary] Microsoft "intellectual property")? This is a company that has always relied 1% on their software engineers; 99% on their legal department.

2007 Oct 26 01:14 PM

[miguel:]

Really....ur not just bashing MS? I read ur article and was confused. Because Google didn't outbid MS, then MS made a poor acquisition. But if Google had won the bid, then MS missed the boat and should have outbid Google. Explain exactly what MS could have done with the Facebook deal that would have made you happy? From ur argument, I can't see anything they could have done that would have made you write a positive article. Ur a hack.

2007 Oct 26 12:48 PM