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Thu 25 Oct 2007 11:09 AM

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Microsoft takes stake in Facebook

Software giant tightens ties with Facebook in a deal valuing the fast-growing social network site at $15 billion.

Software giant Microsoft has invested $240 million in a 1.6% stake in popular online social network site Facebook, the company announced yesterday.

The deal, which values Facebook at $15 billion, also gives Microsoft exclusive rights to sell ads on the site outside the US.

Microsoft was already the exclusive provider of standard banner advertising on Facebook in an agreement made in 2006.

Investing in the site, which allows friends to share pictures and information, gives Microsoft a further push in its efforts to build up its online business as well as challenging online rival Google, which was also rumoured to have been interested in Facebook, in its dominance of the internet space.

The high price tag was justified by the economic potential of the site, which could eventually have 300 million users, Kevin Johnson, president of the Platforms & Services division at Microsoft said in a conference call yesterday.

"You combine the number of users with the monetization opportunities and you can figure out a fairly modest average revenue per user per year and you can very quickly get to this level of valuation," he said.

Founded in February 2004, Facebook, the second largest social network site after MySpace, has nearly 50 million active users at present. The site, which derives its revenues from advertising, is also one of the fastest growing network sites having more than doubled in size over the past 12 months.

Facebook said it planned to use the money for expansion, with the focus on increasing its headcount.

"We are pleased to take our Microsoft partnership to the next level," stated Owen Van Natta, chief revenue officer, Facebook. "We think this expanded relationship will allow Facebook to continue to innovate and grow as a technology leader and major in social computing."

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