Microsoft--Facebook Connection Gets Closer and Deeper (?)

I have always felt that Microsoft was seeking the wrong partner in wooing Yahoo. After all, Yahoo had failed to capitalize on the potential and was losing ground fast to Google. The new kid on the block is Facebook--which is winning handsomely against MySpace. And, Microsoft essentially provided a public valuation for the privately-held Facebook when it invested $240 Million in October 2007. Essentially that investment valued Facebook then at $15 Billion. At that time, Kevin Johnson--who has since left Microsoft--made the following comments:

“Making this investment and expanding this partnership will position Microsoft and Facebook to better take advantage of advertising opportunities around the world, and is a great win for not only for our two companies, but also our collective users and advertisers,” said Kevin Johnson, president of the Platforms & Services Division at Microsoft. “We have partnered well over the past year and look forward to doing some exciting things together in the future. The opportunity to further collaborate as advertising partners is a big reason we have decided to take an equity stake, and is a strong statement of our confidence in the long-term economics of this partnership.”

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On the day after Kevin Johnson's departure, Microsoft announced that it is deepening the relationship with Facebook. Satya Nadella made the following comment as part of Steve Ballmer's segment at the 2008 Financial Analyst Meeting today.

One last thing I wanted to also talk about is an extension of our Facebook relationship where we are extending it to Search and Page Search. We will be providing an API to Facebook where they will create a rich search experience, including a Web search for the Facebook users. And that's something that they will launch in the fall, working with us, and it'll carry both our Web results as well as our Page Search advertising. So we're excited about even using that as an opportunity to further extend the Live Search reach.

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To me, this is an important relationship that Microsoft should nurture and grow. It is potentially as important as the relationship that Microsoft had with Intel during the heydays of the Wintel architecture dominating the PC sector. Microsoft-Facebook could evolve to be a powerful social network advertising platform that could potentially attract Yahoo, AOL and others to be part of the ecosystem that might one day be a dominant credible competitor to Google. I think Microsoft can do without the distractions of Yahoo for now. This cooperation is worth watching and tracking.