There has been a lot of speculation in the media about Facebook’s plans to go public and issue stock. Yet there has been little or no talk or speculation about another interesting possibility – Facebook being acquired by Microsoft or merging with Microsoft.
This possibility is a stronger one than people think because Facebook and Microsoft have long had an alliance. Many people don’t realize it but Microsoft already apparently owns a small slice of Facebook. It bought an equity stake, a piece of Facebook back in 2007 when Facebook was just another uppity startup. Facebook and Microsoft also have an advertising alliance that apparently dates back to 2006. It is supposed to expire sometime this year.
More recently, Facebook has been brought into Windows 8. Facebook has set up an effort called Facebook calling to add phone service with Skype’s help. Microsoft recently purchased Skype to get its hands on a video platform. That could mean that Facebook Skype will be part of Windows 8.
Why a Microsoft/Facebook Merger Makes Sense
A Microsoft/Facebook merger makes a lot of sense because the two companies need each other. Microsoft has an operating system and a lot of software but no good way to distribute it in today’s world. Facebook has a portal/search engine with 750 million users but no operating system or platform. If the two could merge into some sort of platform, Microsoft/Facebook could become the dominant platform in the new online world, the way Windows is in PCs.
Such a merger or acquisition makes sense because nobody knows how much Facebook is really worth. It could launch an IPO but if investors don’t buy its stock, Facebook is finished. There’s already been a lot of talk of a Facebook bubble that could burst. If it does, Facebook could collapse and become as redundant as AOL. Selling out to Microsoft might make more sense.
Mark Zuckerberg would look like a fool and a failure if a Facebook IPO falls flat. He could make a lot more money by making some sort of a deal with Microsoft and merging his company into it. It would solve organizational problems and provide organizational structure and technical expertise that Facebook needs.
Microsoft would benefit from such a deal too because its stock is only selling at around $27.40 a share lately. A merger with Facebook could drive up its stock prices and give both companies a lot of cash. Bringing the great wizard Mark Zuckerberg into the Microsoft management team would also boost investor confidence in the company from Redmond. It would also give Microsoft a celebrity leader to take Bill Gates’ place. Zuckerberg could profit big time by such a deal by getting paid in Microsoft stock.
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An Alliance against Google
Such an alliance could be necessary because neither Facebook nor Microsoft is in a good position to stop Google. Despite the media’s harping on Google’s vulnerability in the search engine arena, Google is in a much stronger position than Facebook or Microsoft. It has a huge pile of cash, the most popular search engine, an operating system and a fast growing browser.
Facebook has a portal and a social network but no browser, search engine or operating system. Microsoft has a browser, a search engine and an operating system. More importantly, it has the technical expertise to quickly add these to Facebook and add Facebook to Windows.
Microsoft’s efforts to counter Google have come up short. Bing has not attracted the users it wants despite all the advertising. If Microsoft could add Bing to Facebook, it would get 750 million more users. If it could use Facebook to deliver its software, it could be onto a major new stream of revenue.
Microsoft also has to meet the challenge of Google Chrome OS and the Chromebook. Google’s operating system is a real threat to Microsoft, especially at the lower end of the market. The kind of people most likely to use Facebook (lower income and technologically challenged) are the kind of people most likely to buy a Chromebook. Those people won’t care what operating system they use as long as they can send pictures of their kids to Aunt Stella in Des Moines. Many of them won’t be able to tell the difference between Google+ and Facebook.
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Unlike Facebook, Google is rich enough to spend several billion dollars developing a social network. It has spent a fortune adapting Linux for Google Chrome OS, so it is not going away. With stock selling at $603 a share, Google can afford to spend money building a network.
Facebook also faces the problem of saturation; sooner or later the company is going to hit a limit. Not everybody wants to use Facebook or create a Facebook page. There are tens of millions of computer users (like me) who don’t have one and won’t have one. Sooner or later, Facebook will hit its limit of growth then what.
Also dogging Facebook is the problem of what will happen when the novelty wears off. What happens when people start getting bored with Facebook and deleting or simply ignoring their Facebook pages? Even a slight drop in the number of Facebook users would send the company’s stock prices crashing down if it were publicly traded. Part of the reason Mr. Zuckerberg has kept his creation private is its vulnerability.
A much better course of action would be to merge Facebook into Microsoft. That would create a new company capable of withstanding Google, if not rivaling it. It remains to be seen if Wall Street and gigantic bank Goldman Sachs, which reportedly has the right to run Facebook public, will go along with this. It also remains to be seen if Facebook and Microsoft could actually live together and work together.