San Francisco - Rapidly rising internet star Facebook has sold a 1.6% stake to Microsoft for $240m, spurning a competing offer from online search leader Google.
Culminating weeks of negotiations, the investment announced on Wednesday values the social networking site at $15bn - a stunning figure for an online hangout started in a Harvard University dorm room less than four years ago.
Microsoft also will sell internet ads for Facebook as the site expands outside the United States, broadening a marketing relationship that began last year.
"This is a strong statement of confidence in this partnership and in Facebook," Kevin Johnson, president of Microsoft's platforms and services division, said during a Wednesday conference call with reporters and analysts.
Besides validating founder Mark Zuckerberg's decision to rebuff a $1bn takeover offer from Yahoo last year, Microsoft's money should be more than enough to pay for Facebook's ambitious expansion plans until the privately held company goes public.
Zuckerberg, 23, has indicated he would like to hold off on an initial public offering for at least two more years. In the meantime, Facebook hopes to become an advertising magnet by substantially increasing its current worldwide audience of nearly 50 million active users, who connect with friends on the site through messaging, photo-sharing and other tools it offers.
To double payroll
Although News Corp's MySpace.com remains the largest social network, Facebook has been growing much faster the past year.
Facebook attracted 30.6 million US visitors during September compared with 68.4 million at MySpace. Microsoft's entry in the social networking arena - "Windows Live Spaces" - attracted 9.8 million US visitors, according to comScore.
To support its growth, Facebook is gearing up to more than double its payroll during the next year to about 700 employees. The company currently employs about 300 workers with annual revenue believed to fall between $100m and $150m.
The Facebook investment represents a coup for Microsoft because it strengthens the world's largest software maker's toehold on a hot internet platform ripe for more advertising - a field that Google otherwise dominates.
During its fiscal year ending in June, Microsoft's online ad revenue rose 21% to $1.84bn. Over the same period, Google's ad revenue soared 64% to $13.3bn.
Blow to Google
Microsoft also appears interested in Facebook's success with "widgets" - the interactive capsules that offer applications available on other websites. Outside developers have created about 8 000 widgets since Facebook began soliciting the contributions in May.
Johnson said Microsoft plans to work with Facebook in areas besides advertising but declined to elaborate.
With the Facebook investment, Microsoft dealt a rare setback to Google, which trumped its rival in earlier bidding battles involving a stake in AOL and ownership of online video sharing pioneer YouTube and internet ad service DoubleClick.
Microsoft could not afford to lose the tug-of-war for the Facebook investment and advertising alliance, said Gartner analyst Allen Weiner.
"This was a muscle-in from Microsoft," Weiner said. "It would have been a nice-to-have for Google, but it was certainly not essential."
Microsoft starting to get it
Facebook also felt more comfortable about working with Microsoft because Google has made no secret about its interest in building a more formidable social network of its own. Google's current social network, called Orkut, has had relatively little success outside South America.
Owen Van Natta, Facebook's chief revenue officer, said the company talked to several suitors before settling on Microsoft. He declined to provide further details.
Microsoft's successful courtship of Facebook shows the 32-year-old company is becoming more savvy about the internet, said Matt Rosoff, an analyst for the research group Directions on Microsoft.
"I think they understand it now and they're proceeding correctly," Rosoff said. "Two years ago, I would have said they don't get it at all."
Tim Armstrong, who oversees Google's North American advertising, declined to comment on the Facebook negotiations during a meeting with analysts on Wednesday at the company's Mountain View headquarters.
"We have tremendous respect for them," Armstrong said of Facebook.
- AP