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Innovation in Information Security

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Internet Bubble 2.0

Microsoft's purchase of 1.6% of social networking site Facebook for $240 million USD has only added to fears that there is a significant overvaluation in the market for major websites and related companies - basically that there is an Internet Bubble 2.0 in the works. With Facebook valued now at up to $15 billion USD (based on Microsoft's purchase price) it has elevated the company into the top 10 Internet companies by value, though it is still producing far less in terms of ongoing revenue than other companies with comparable market value.

Some who are looking deeper into the purchase are seeing it as a strategic move by Microsoft to prevent Google or another competitor from snapping up the site on the cheap. By paying so much for so little of the company it forces other would-be investors to significantly increase the amount of resources that they would need to gain a controlling stake in the site, while it also provides a stronger avenue for Microsoft to push their Flash-competing Silverlight technology on web users (Microsoft is Facebook's primary, now exclusive, advertising supplier).

In the fickle world of social networking sites, it could still be a $240 million USD hole in the space of a few months if the next greatest thing comes along - something Microsoft should have already been aware of with their Windows Live Spaces platform. While Facebook currently has a nicer feel and look than many comparative sites, it is all based on something better not yet having much traction amongst Internet users. Some have pointed out that these sites maintain the position that free webhosts like Geocities once maintained in the late 90's.

Microsoft's big push to purchase 20 web companies per year over the next five years could also be playing a part in the investment into Facebook and ongoing growth of the bubble for the next few years. With predicted purchase ranges of $50 million to $1 billion USD per company, that is a lot of money for companies that will soon find themselves in the sights of Microsoft (if they aren't already in the sights of Google, Yahoo!, or some other major technological company). Enterprising company owners can pitch directly to Steve Ballmer, or he can always contact us directly.

29 October 2007

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