Facebook chooses Microsoft over Google

Facebook will sell a $240 million minority stake to Microsoft, which as part of the deal will also expand the advertising services it provides to the social networking phenom, the companies said Wednesday in a statement.

The size of the ownership stake Microsoft will take during Facebook's next round of financing puts Facebook's valuation at a whopping $15 billion. Google had reportedly been courting Facebook as well.

In addition to the ownership piece, Microsoft will also extend its existing agreement to provide banner ads to Facebook in the U.S. With this deal, Microsoft will become Facebook's exclusive third-party ad platform, as well as provide Facebook ads internationally.

Facebook will likely devote the cash influx from its next financing round to bankroll the torrid growth it is expecting in the coming 12 months in usage and headcount.

With about 300 employees now, Facebook expects to have about 700 a year from now, its CEO and co-founder Mark Zuckerberg said last week at the Web 2.0 Summit.

Meanwhile, the site is growing its usage at breakneck speed, with about 250,000 new users registering every day.

Founded in 2004, it currently has about 49 million active users today, up from 12 million in December. Over half of its active members return to the site daily. Some 59% of its users are outside the U.S.

Earlier Wednesday, The Wall Street Journal and The New York Post reported that Facebook was in the final stages of making a decision on whether to do this deal with Microsoft or Google.

For Microsoft, which hasn't attained as strong a position in online advertising as it had hoped, and lags behind Google, landing this deal could be a major win, as long as Facebook proves to be as attractive an advertising vehicle as expected.

The Journal reported later on Wednesday that Facebook expects a profit of about $30 million this year, on revenue of $150 million.

Google and Yahoo provide ads for Facebook rival MySpace.

Still, questions remain about social networking sites' full potential for advertising, since most of their content is largely unregulated and created by millions of individuals, resulting often in material that is vulgar and objectionable.

Facebook plans to share more ideas for revving up its advertising business on Nov. 6, at an event in New York to which it has invited what it calls "its closest advertisers."

"As part of [the event], Facebook executives will discuss new approaches for advertising online," a Facebook spokeswoman said via e-mail. "We are not sharing any further details."

Facebook, MySpace and others are also under close scrutiny from law enforcement agencies in the U.S. and abroad because sexual predators use social-networking sites to stalk and victimize people, in particular minors.

The Journal first reported Google's and Microsoft's pursuit of the Facebook investment a month ago.

The IDG News Service is a Network World affiliate.