Facebook, Skype, and Microsoft’s savvy investment

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Published on: July 7, 2011
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Facebook's Mark Zuckerberg, left, and Skype's Tony Bates announce a deal to include Skype's video conferencing into Facebook's social network.
Facebook's Mark Zuckerberg, left, and Skype's Tony Bates announce a deal to include Skype's video conferencing into Facebook's social network.

Just after Microsoft Chief Executive Officer Steve Ballmer announced plans in May to buy Skype, he and Skype Chief Executive Officer Tony Bates had one more order of business.

“The day we announced, we definitely came to see Mark,” Bates said, talking of Facebook Chief Executive Mark Zuckerberg, at a press conference today announcing Facebook’s plans to bake Skype’s video conferencing technology into its social network. “It was for both of us, Steve and I, the most important strategic relationship.”

As Google grows ever more powerful in techdom, and Microsoft’s influence slips, the Redmond software giant is building closer and closer ties to Facebook. The Facebook-Skype deal today is more evidence that Microsoft and Facebook are in lockstep as they fight their mutual foe, Google. And it comes even while Microsoft awaits regulatory approval to conclude its Skype acquisition.

“We have a really good relationship with Microsoft, where we work with them on a lot of different stuff,” Zuckerberg said at the press conference announcing the new video-conferencing feature. That stuff includes advertising, where Microsoft provides all the search advertising to Facebook. It used to provide display advertising, too, but Facebook took over that task last year.

Microsoft has been criticized for its many missteps on the Internet, ranging from leisurely upgrades of Internet Explorer to being slow to understand the importance of search. But its relationship with Facebook is something Ballmer & Co. got right. Microsoft cemented its bond with Facebook in 2007, when it bought a 1.6 percent stake in the company for $240 million. Today, if reported valuations of Facebook are to be believed–online privately held stock marketplace SharesPost currently has an implied value for the company at $82.4 billion–that 1.6 percent is worth $1.3 billion.

But the Microsoft-Facebook relationship isn’t really about savvy investment, of course. It’s about fighting off Google. Microsoft’s Facebook deals, and you can include the new video chat feature from Skype, are all aimed squarely at the search king. And just as the Web search giant has changed the market dynamics to undermine Microsoft’s power–helping establish the Web, not the PC desktop, as the heart of computing–so too is Facebook challenging Google. Its service, with 750 million users worldwide, is becoming something of an alternative Internet, a place where computer users spend huge chunks of time and never touch a Google service.

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