The Facebook Decision: Microsoft or Google

In any business, partnerships are done with strategic interests involved. Productive partnerships are done with the belief that there is a strategic benefit involved with coming together on a specific area of research or development. Beyond co-branding where an entity places its name on a product, partnerships are done with two independent businesses marry each other, bringing their collective resources and teams together. It is this environment that social-networking giant finds itself in as it looks to decide between its newest partner, the vaunted Microsoft or Google.

In marketing, co-branding is the advertising activity of media placement on a popular product or television show. Over the last twenty years or so, co-branding in television has seen television shows feature cars made by a single manufacturer, women visiting a particular coffee house, or some other specific product placement. Co-branding has become an active part of what most businesses do on a daily marketing basis.

The flipside of that is a strategic partnership or alignment. Simply put, businesses join together to accomplish an intended goal they feel they would be less effective at alone. In the tech sector, startups have looked to be acquired by larger outfits in order to leverage the infrastructure of the parent company while at the same time optimizing the capacity and capability of the new business. That is the dilemma that Facebook faces as it looks to establish their first major strategic partnership that will probably be the sole partnership for the life of the company.

During the dot-com buildup of the 90s startups that were looking for seed capital to build out operations or invest in infrastructure secured financing from either venture capital firms or corporations that looked at the startups as a research and development venture and invested on that basis acquiring an ownership stake in the startup for the capital that they invested. When Marc Andreessen, a college student at the Univ. of Illinois went and met with John Doerr of the Silicon Valley venture capital firm Kleiner-Perkins, Andreessen received a $5 million investment and KP left the meeting owning one-quarter of what was to become Netscape.

In the case of the social networking giant Facebook, with competition between it and MySpace increasing daily as they compete for new members and page views. For the last two years, MySpace has been the darling of the venture community as the News Corp. owned enterprise saw its membership grow exponentially as people from all around the globe developed their own MySpace pages for their friends to visit. However, over the last two years, the Harvard groomed enterprise that is Facebook has seen its status eclipse that of MySpace and become the social networking site for the new hip, trendy Internet user.

Currently, Facebook is weighing two partnerships of its own. Google, the search engine/web service provider has already had discussions with FaceBook executives about investing in the company. And just this week, Microsoft and Facebook had discussions as Microsoft looked to invest $300-500 million for a five percent stake in the networking giant. With the world's two industry drivers having preliminary discussions with Facebook about entering a partnership, the decision could put the estimated value of Facebook at nearly $10-12 billion. And all of this without going forward with an initial public offering.

The interesting twist in the saga is that FaceBook's founder, Mark Zuckerberg is looking for an investment package that would bring the social networking company to a valuation of closer to $15 billion. Given that hope, Microsoft's estimated $300 million investment would grant them only a 2% stake in the fast-growing company. It is doubtful that Zuckerberg will be able to push FaceBook's value that high with it still trailing MySpace by a large margin. However, if they are able to sustain their growth over the next year and receive the Microsoft infusion by the time they push to an initial public offering such a valuation is more plausible.

With Microsoft looking to invest in FaceBook and News Corp. continuing their push with MySpace the genre of social networking is becoming as vaunted as web browsers and web portal companies did back in the 90s. No one remembers Alta Vista going public in the 90s but it had a good day on its initial public offering. That will not happen again. Companies are much more shrewd about who and what they invest in. And while Zuckerberg may continue to run the daily operations of FaceBook it is certain that if Google or Microsoft enters a partnership cutting a check will only be part of the deal.