Question: Why Does Microsoft Think Facebook is Worth $10 Billion? Answer: Google

It’s pretty simple, really. Microsoft sees Facebook as a key to developing a comprehensive ad delivery platform to rival Google’s.

From the Wall Street Journal:

Some industry executives believe the Internet today is facing the sort of turning point that the computer-operating-system sector confronted two decades ago: Whoever controls the technology platform for buying and selling online ads could hold tremendous power over the Internet industry for years to come — much as Microsoft was able to use its Windows operating system to shape the personal computer.

And considering that Google is reportedly hot for Facebook as well, Microsoft is willing to pay a premium to make sure that it doesn’t fall into enemy hands.

From the New York Times:

Facebook is seeking a minimum valuation of $10 billion but interested bidders have expressed a willingness to value it as high as $13 billion, on the assumption that, in the future, Facebook will become a powerful player in the online world.

These numbers might have little basis in actual revenue or profit. Facebook is a private company and does not reveal its income. But earlier this year, a Pali Research analyst, Richard Greenfield, estimated that the company brought in $60 million to $96 million in annual revenue, with no real profit. Much of that revenue comes from a year-old advertising relationship with Microsoft, which places display advertisements on the site.

Mr. Greenfield said the investment price that Microsoft was considering might have more to do with keeping the prize out of the hands of its powerful rivals. “There may be competitive reasons to be connected to this asset beyond what the specific valuation is today,” he said. “You may be paying a premium to keep others out.”

But with Facebook’s disappointing .04% click-through rate, is it really the solution either giant is dreaming of?

Update: Kara Swisher thinks the $10-$15 billion valuation is ludicrous.

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