Tuesday, October 23, 2007

The high price of Tech

When I blogged on the importance of Facebook the other day I have to admit I would have struggled to put a $15Bn valuation on the business. That said, Microsoft has effectively done that today making both the purchase of MySpace by News Corp for $580m and Google's acquisition of YouTube for $1.65Bn look like bargains. It will be fascinating to see what this deal does to the Facebook express train. With this amount of cash they can presumably go global and invest in their platform at a pretty aggressive rate. It will also allow the senior executives to get on with running the company instead of having to go through any rounds of VC funding. That said, it is pretty clear that they'd have had no problem raising money via that route if they'd wanted.

What I find more interesting is that Microsoft took such a small stake. It is pretty clear that they simply wanted to block Google rather than get executive control at this stage. Of course beyond the stock deal there is the ad rights portion. This is where the deal starts to make a lot of sense. The deal effectively gives them the rights to one of the biggest online properties on the planet and for that reason alone you can see why the valuation makes sense.

We have seen Tech valuations rebound quite dramatically this year. We had the VM Ware IPO which has been an amazing success story and now we have this deal. It certainly seems like the investment banks are keen to recoup the losses the banks have made in the mortgage business by some bold tech investments. It will be interesting to see which tech property can outdo these deals. One things for sure - someone will!


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