Microsoft has won a high-profile technology industry battle with Google and Yahoo to invest in the social networking upstart Facebook.
The two companies said on Wednesday that Microsoft would pay US$240 million for a 1.6 percent stake in Facebook.
The investment values Facebook, which is three and a half years old and will bring in about US$150 million in revenue this year, at US$15 billion.
The deal throws the value of the holdings of Facebook investors into the stratosphere. Mark Zuckerberg, the 23-year-old Facebook co-founder who followed the path of Bill Gates by dropping out of Harvard to build a company, owns a 20 percent share that may now be worth as much as US$3 billion.
Accel Partners, the venture capital firm that invested US$12.7 million in May 2005, now holds stock that could be worth U$1.65 billion.
The investment also ends two months of jockeying among three major Internet players for the right to invest in and forge close ties with Facebook.
Microsoft and Facebook executives said they met in several cities over the last month and moved toward consummating the deal by sending cell phone text messages to each other while Steven Ballmer, chief executive of Microsoft, was speaking last week at the Web 2.0 technology conference in San Francisco.
"There were a lot of twists and turns, as there always are in these things," said Owen Van Natta, chief revenue officer of Facebook.
The final negotiations were completed on Wednesday morning in Facebook's offices in Palo Alto.
As part of the deal, Microsoft will sell the graphical banner ads appearing on Facebook outside of the US, splitting the revenue. Microsoft has an existing deal with Facebook to run banner ads on the site in the US through 2011.
The astronomical value placed on Facebook is evidence that Microsoft executives believed they could not afford to lose out on the deal. Google appears to be building a dominant position in the race to serve advertisements online.
Fearing it might lose control over the next generation of computer users, Microsoft has been trying to keep up with and in some cases block Google's moves, even if that effort is costly.
"We are now stepping outside what is typically a business decision," said Rob Enderle, the founder of the strategy concern Enderle Group. "This was almost personal. I wouldn't want to be the executive that's on the losing side at either firm."
On a conference call with journalists and analysts, Kevin Johnson, president of the platforms and services division at Microsoft, described the deal as a "major advertising syndication win for Microsoft."
"The equity stake that we are taking in Facebook is a strong statement of confidence in this partnership," Johnson said.
"It's a statement of confidence in the fact that our advertising platform is going to get stronger and will help monetize Facebook," he said.
On the same call, Van Natta responded to a question about reports that both Yahoo and Google were bidding to invest in Facebook by saying, "We were very fortunate to have a lot of folks interested in a partnership with us around advertising."
Van Natta said the investment would allow the company to more than double its work force to 700 employees by the end of next year.
He also said it would help Facebook expand internationally and buy the technology to help keep up with its rapid growth.
Facebook says it has 50 million active members and is adding 200,000 new ones each day.
MySpace, the site owned by the News Corp that is Facebook's main rival in social networking, has more than twice as many members but is growing more slowly.
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