Best Deal of 2007: Microsoft-Facebook?

Much has been written on the terms of the deal between Microsoft and Facebook. The gist of it is this: Microsoft paid Facebook $240M for 1.6% of the company, and the exclusive rights to sell online advertising for the site.

This being the year-end, all pundit types have got their best and worst lists coming out, and this deal seems omnipresent on worst deals of the year lists.

Its not hard to see why this argument is made: "worst" is really a proxy for "stupidly lopsided value creation", and is Facebook remotely worth that much (remember that MySpace went for $500M and YouTube for $1.6B)? It creates an implied valuation on their user base (figure 50M users or so) of, like, $300 a head... that's some big math... hard to see how Microsoft ever really recoups its investment.

But of course, that's to focus on the value with regard to public markets and value cap - the *wrong* metric here. That implied valuation of $15B, is pretty much (forgive my language) bull$#!t because this deal was, in reality, a barter deal.

Let's look at the deal another way, very simply, in terms of cash:

1) Facebook gets a $240M cash infusion while giving up very little control or equity,
2) Microsoft gets a significant destination outside its network in which to build the value of its recent, very large acquistion of aQuantive (4% of the $6B that's already "sunk"),
3) Microsoft has to generate incremental ARPU of only $5 a user *in total* to break even,
4) Facebook is valued at $15B, which means...
5) Facebook is either (depending on where you think this ends): (a) off the market for some time at that price (so no Google, Yahoo, et al spoilers), or (b) tied to Microsoft and hardening/creating value in their online ad platform

Win, win, win, win, win - at least for Microsoft and Facebook: you know, the parties actually doing the deal?

Isn't that the definition of "best"? Lopsided value creation for *both* sides?

Any "investment" dollar$ back from the deal is pure upside for Microsoft. That means that they, more or less, let Facebook fill in the denominator: $240M of $XX - Microsoft doesn''t/didn't *really* care what that number was...

I don't know about you, but it leaves me with a funny taste in my mouth... is this the "revenue exchange" program of the new bubble - a variation of the old: "I'll buy from you if you buy from me and both our revenues go up, but we're not spending any money trick?"

Dunno - but it also smells suspiciously similar to another "equity for exclusivity" deal...