Microsoft is obtaining a stake of 1.6 percent in the wildly popular social networking Web site for $240 million, and will get to sell advertising for Facebook internationally as well as in the United States.
The price puts a value of $15 billion on an Internet company with an estimated $150 million in annual revenue and no profits.
"This is an insurance policy that Google doesn't get in," Enderle Group analyst Rob Enderle said of the deal.
"For an independent investor to come in and say it would be worth spending $14.76 billion for the rest of the company would be foolish."
Microsoft was determined not to lose out to Google as it has in the past with its efforts to buy video-sharing website YouTube, which Google owns, and online ad targeting firm DoubleClick, which Google is in the process of buying.
"I think Microsoft is very much aiming at Google," Directions on Microsoft analyst Matt Rosoff said.
"The big picture threat is that everything moves to the Web, and whoever is best on the Web captures most of the money."
Google is the reigning king of online advertising, and is increasingly offering free Internet-based applications such as text and calendars that compete with software that Microsoft sells.
More than 60 percent of all US Internet searches are done using Google, and the Northern California company reported billion-dollar profits in recent quarters.
"Microsoft wants to make sure that, at worst, it is a two-company game, and that Google fails to gain any more ground," Rosoff said.
Google chief executive Eric Schmidt declined to comment on Microsoft's deal with Facebook, but did share views on what they saw as overbidding for Internet firms.
"The overbidding is a constant, and it always makes me mad and Serge calms me down," Schmidt said while he and Google cofounder Sergey Brin spoke with reporters Wednesday.
"Eventually, these are businesses that have to be profitable."
Google also courted Facebook, vying with Microsoft for its favors for nearly a year. Facebook was founded by Mark Zuckerberg, now 23, when he was a Harvard student in 2004.
Facebook now claims nearly 50 million active users and, by some measurements, is among the top 10 Web sites worldwide.
"Just blocking Google from Facebook is worth that money," Enderle said.
"Clearly the new battlefield is not the desktop, it is the Web. And Google is getting a frightening amount of power."
Strategically, Microsoft might not just be thwarting Google with the Facebook deal, but could drive up prices of similar Internet firms, making it harder for competitors to make acquisitions, Rosoff said.
"When you start seeing these kinds of valuations for companies that haven't really created a thriving business yet, you have to wonder what is going on and how long it is going to last," Rosoff said.
"There is a defensive play here."
Facebook is not critical to Google, which has advertising deals with MySpace and other social networking Web sites, according to analysts.
"Missing out on Facebook stings, but is won't cripple them," Enderle said. "Google is on a path to be one of the most powerful technology companies in history."
Nontheless, Google would suffer a serious blow if regulators in the US or the European Union fail to approve its DoubleClick purchase, according to analysts.
© 2007 Agence France-Presse
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