Microsoft Corp is in talks to buy up to 5 percent of Facebook in a deal that could value the fast-growing online social network company at $10 billion or more, the Wall Street Journal reported on Monday.
The move could give maturing Microsoft more access to young users and let Facebook get closer to a major software maker at a time when its growth is increasingly tied to a proliferation of small applications from independent developers on its site.
Citing people familiar with the matter, the Journal said the world’s largest software company sought to buy a stake of up to 5 percent in Facebook for $300 million to $500 million.
Facebook, led by its 23-year-old founder and Chief Executive Mark Zuckerberg, may insist on a valuation as high as $15 billion and is considering raising up to $500 million in cash to expand its operations, according to the Journal.
Such a deal could help Microsoft better compete against Web search leader Google Inc for a growing base of online advertising and put one of the Internet’s hottest names in Microsoft’s camp.
Facebook, which already has an advertising deal with Microsoft, would benefit from closer ties with developers as it seeks to turn its site into a full-fledged Web platform where users can play games, interact and read news about each other, said Forrester analyst Charlene Li.
“If you are building a business around building a platform there is one company that has done it better than anybody else — and that is Microsoft,” she said. “People have been just assuming that Google would be the best partner and that is not necessarily the case.”
Google has also expressed an interest in investing in Facebook, the Journal report said.
“It would probably be pretty good for Microsoft since it has not had the best success in creating really hip, young-people-grabbing stuff on the Web,” said Kim Caughey, a senior analyst at Fort Pitt Capital Group, which oversees more than $1 billion, including Microsoft shares, for clients.
Representatives for Microsoft and Facebook declined to comment.
Zuckerberg has repeatedly said his company wants to remain independent and is seen as preparing to float itself on the stock market eventually.
Facebook has grown to 39 million members, up nearly 63 percent from 24 million in late May, and is quickly gaining ground on larger rival MySpace, which was taken over by News Corp in 2005 for what is now seen as a bargain price of $580 million. MySpace has more than 200 million users.
Facebook’s explosion popularity has also drawn increased scrutiny, including a 50-state investigation into the company by attorneys general concerned about Web sexual predators.
New York Attorney General Andrew Cuomo said on Monday his office had subpoenaed Facebook and accused it of not keeping young users safe. Facebook said it was preparing a statement about the issue.
Redmond, Washington-based Microsoft already has an exclusive agreement until 2011 to broker display advertisements for Facebook. The Journal said Microsoft and Facebook are discussing expanding that agreement beyond the United States.
After relinquishing an early advantage in the lucrative paid search market to Google and Yahoo Inc, Microsoft is trying to catch up by clinching deals to broker display advertising to some of the leading names in “Web 2.0.”
Yahoo and Google are also maneuvering. Earlier this year, for instance, News Corp chief Rupert Murdoch said he had discussed swapping MySpace for a 25 percent stake in Yahoo.
Web 2.0 is a catch-phrase for a new generation of Internet services that run on interactive software and typically rely on content generated by users to attract more visitors. Microsoft also has an agreement with popular news site Digg.com.
Microsoft shares rose 1.5 percent to $29.08 on Nasdaq.
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Club Penguin, an online hangout that has quickly become a rage among preteens despite limited marketing and advertising efforts, has been purchased by the Walt Disney Co. for at least $350 million, the companies announced Wednesday.
Payments could double to as much as $700 million if profits grow, Disney Chief Financial Officer Thomas O. Staggs said.
The acquisition by Disney gives Club Penguin more resources with which to grow. According to comScore Media Metrix, the site nearly tripled in usage over the past year to 4.7 million unique U.S. visitors in June. Executives hope to expand to additional markets abroad and gain even more customers through promotions on Disney-branded sites.
“We have been actively searching for an organization that not only shares our values and concerns for children, but also has the ability and desire to help us bring Club Penguin to more children throughout the world,” said Club Penguin co-founder Lane Merrifield said in a statement. “We’ve found that partner in Disney.”
Club Penguin, from Canada’s New Horizon Interactive Ltd., offers a mix of games and chatting tools targeting the kids ages 6-14, who appear onscreen as plump cartoon penguins.
Kids win gold coins by playing games such as sled racing and, with a paid membership costing about $5 a month, buy virtual items like clothing for their penguins and furniture for their online persona’s igloos. Kids can attend parties and make friends by adding other penguins to their buddy lists.
Although sites like Club Penguin and its rival, Webkinz, are forcing parents to grapple with how young kids should be roaming about and chatting with friends online, many Internet safety experts believe these social-networking precursors are far safer than News Corp.’s MySpace, Facebook and other hangouts for older users.
Parents, for instance, can choose an “ultimate safe” mode, meaning chat messages sent and received are limited to prewritten phrases, such as “How are you today?”
In the standard mode, kids can type messages freely, but filters look for foul language and even innocent-sounding words such as “mom” — to prevent someone from asking, “Is your mom home?”
“Club Penguin embodies principles that are of the utmost importance to Disney — providing high-quality family entertainment and fostering parental trust,” Bob Iger, Disney’s president and chief executive, said in a statement. “The founders have woven together new technologies and creativity to build an incredibly compelling, immersive entertainment experience for kids and families.”
Other than renaming the service “Disney’s Club Penguin,” Disney said it has no immediate plans to change Club Penguin’s operations, which will continue to run from Kelowna, Canada.
“Club Penguin is going to continue to exist as is,” Iger said during the company’s conference call to report quarterly earnings. “The experience will not change at all. We don’t intend to get in the way of that or do anything that would in any way have a negative impact on their business.”
Iger said Disney planned to integrate Club Penguin into other Disney businesses, promoting it on the Disney.com site and the Disney Channel, Radio Disney and the company’s theme parks.
Disney already operates the virtual game “Toontown” and is developing a similar virtual world around its “Pirates of the Caribbean” characters. Iger hinted that Disney also was working on a virtual world based on “Cars,” an animated movie created by Disney-owned Pixar.
Iger said the acquisition of Club Penguin would give Disney the expertise to grow those properties more quickly.
Club Penguin says it has more than 700,000 paying subscribers and 12 million registered users, mostly in the United States and Canada.
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Facebook on Thursday made its first acquisition. The social-networking site bought a Web start-up called Parakey.
Parakey was started by Firefox’s two founders, Blake Ross and Joe Hewitt. The site gives this description of the service: “Computers are frustrating. Creating documents, finding files, sharing information–why do everyday things still seem so tedious and counterintuitive? We hope that Parakey will make your life easier.”
According to Inside Facebook, “Parakey is intended to be a platform for tools that can manipulate just about anything on your hard drive: e-mail, photos, videos, recipes, calendars.”
What is Facebook planning on doing with a start-up that specializes in integrating online services with local machines? Facebook’s press release says the company will be working on the development of its Facebook Platform as well as its Web site.
I would have to say that Parakey will be bringing something fresh to Facebook Platform; otherwise, there would have been no need for this acquisition. Facebook’s developers could have continued to work on it. Tight integration with local content on your computer and offline access to some Facebook services seem likely here.
There are a few things that come to mind when I think about this. The obvious one is, of course, integration between Facebook Events and desktop calendar applications such as iCal and Outlook. A couple of the other things in the list of what Parakey can manipulate (photos and videos) match up with what Facebook is doing right now as well. Although these are good possibilities of what Facebook may do with this acquisition, it’s really anyone’s guess at this point, especially since nobody has yet really seen Parakey in action.
Details of the money exchanged in the acquisition have not yet surfaced. As more information about how Facebook will be using Parakey’s developers and technologies becomes apparent, I’ll do a follow-up on this. This news begs the question of what the odds are that Facebook is going down the road to an IPO.
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