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New inside information allegedly indicates that Microsoft sought to acquire Facebook, but has been forced to change its plans

A new report released Wednesday in the Wall Street Journal indicates that Microsoft expressed interest in acquiring Facebook, the second largest social network, painting a more interesting picture of the waning talks with Yahoo.  Microsoft already owns a $240M USD, 1.6 percent stake in the company.  A full acquisition could be valued at $15B USD or more.

According to the reporter, Microsoft's bankers subtly inquired about Facebook's interest in a possible full acquisition.  The talks were first made public by All Things Digital, a website owned by publisher Dow Jones, which also owns the Wall Street Journal.

Microsoft's spokespeople did not make themselves immediately available for comment on the report.  Facebook spokeswoman Brandee Barker also refused comments.

The report indicates that no current talks are going on between the two companies, as apparently Microsoft was rebuffed.  Facebook is one of the hottest internet properties, founded in 2004 by Harvard student Mark Zuckerberg.  The site has over 70 million registered users and boasts high site loyalty and traffic volume.  Zuckerberg in the past has opposed selling the whole company, working instead to develop partnerships and move toward an initial public offering.

It is unclear exactly where the comments fall in the chronology of Microsoft's online dealings, but it appears that they were made before Gates comments on Wednesday.  Perhaps Microsoft only decided to go it alone after being rejected by Facebook, if the reports are to be believed.

Following the alleged Facebook declination, Microsoft has been jokingly dubbing its new online efforts "Project Granola" according to news sources and is focusing on "organic" moves, hence the humorous title.  "Organic" efforts apparently consist of one more certain objective -- increasing investment in marketing, technology and research -- and one more uncertain effort, developing partnerships. 

While Microsoft is no longer eyeing any acquisition targets officially, Gates comments indicated interest in additional partnerships similar to the current one with Facebook.  While Gates clearly stated that Microsoft will increase spending internally for online efforts, many analysts remain skeptical, as Microsoft has already spent billions, yielding little gain on competitor Google. 

Writes Cara Swisher of All Things Digital on the Microsoft's internal online plans, "Of course, that plan has not worked out so well as yet for the software giant, with Microsoft spending billions of dollars with no profits and little gain in online search or ad market share, while its archrival Google keeps growing stronger."

The moves by Microsoft, both with Yahoo and Facebook, represent a clear sentiment from Microsoft that it is desperate to find a way to counter Google's success in the online arena.  Gates says that the answer for Microsoft, having been unable to find an acceptable partnership is to go back to the drawing board with a series of company meetings, focusing on internal efforts.  However, it'd be surprising to not see Microsoft not make any bigger moves in the long run after it has been in such a merger frenzy the last couple months.

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At this rate...
By i3arracuda on 5/8/2008 11:57:29 AM , Rating: 6
...I expect Microsoft to make an acquisition offer to DailyTech, only to be shot down at the eleventh hour by Jason Mick, due to an unsatisfactory number of external links in their proposal.

Unrequited, Microsoft saunters on.

RE: At this rate...
By mikecel79 on 5/8/2008 12:02:15 PM , Rating: 5
Can we give this guy a 7? That was awesome.

RE: At this rate...
By KristopherKubicki on 5/8/2008 12:02:50 PM , Rating: 2
Even I do not have that power :(

RE: At this rate...
By Macelind on 5/8/2008 2:27:32 PM , Rating: 2
Even I do not have that power :(

There is no god.

RE: At this rate...
By daftrok on 5/8/2008 3:00:48 PM , Rating: 2

RE: At this rate...
By barjebus on 5/8/2008 4:30:46 PM , Rating: 6
You rang?

RE: At this rate...
By dflynchimp on 5/8/2008 5:23:45 PM , Rating: 2
epic win

Why Bother?
By LyCannon on 5/8/2008 1:13:30 PM , Rating: 3
With the current trouble Microsoft is in from it's Vista lawsuit, the EU going nuts over them, why they are trying to expand into new area's when they really need to pull together as a company and develop their core products.

SQL Server
Visual Studio

Microsoft is a software company. I understand that they want more money, hell, what company doesn't? But their further expansion is bringing down the quality of all their software products.

To Microsoft: Please focus on your existing software!

RE: Why Bother?
By Oregonian2 on 5/8/2008 2:43:13 PM , Rating: 3
That probably would not be a good plan for them longterm.

They've a problem. Their current products (at least for non-commercial users) are adequate. Windows XP and even Office 2003 are just fine pretty much. At some point nobody buys a new OS nor new office software from them because the old stuff works fine and copies have already been bought. They then go into replacement-only mode or only selling to new markets in countries that aren't already saturated. That business is like Kodak's film business in terms of growth potential. Good money, but you don't want to make that your company's future if you want to stay in business long term (or at least without shrinking down substantially).

One method of getting around the problem is not to sell software, but to "rent" it where you get revenue continuously in yearly payments (ability to do that with XP is in the software, but I think it was only trial-used in New Zealand). You can see some companies trying to get into that mode. Another way is to get into new growing businesses -- this is the primary way of keeping companies going (companies like food companies or even car companies have the advantage that 100% of their product will have to be re-purchased before too long due to wear or due to being eaten).

But of course, it'd be nice (for them) if they can get into a business that is at least theoretically capable of being profitable. :-)

RE: Why Bother?
By Reclaimer77 on 5/8/2008 2:46:45 PM , Rating: 2
I don't think the perception by some of you that MS can only focus on one thing at a time is very realistic. For a company as large and with as many employees and capital as MS, I don't think purchasing companies and developing software are mutually exclusive.

MS is highly diversified in the Tech trade right now. To call them just a " software company " isn't really accurate.

saw this comming
By omnicronx on 5/8/2008 11:59:42 AM , Rating: 2
After reading yesterdays article on Microsoft no longer being interested in Yahoo, I immidiately thought of what other business moves Microsoft would try to pursue instead. Top of my list, Facebook, they have already injected money into the company, and as it stands right now facebook is in need of a rehaul so they can actually start making money. Seems like a match made in heaven... for MS and Facebook anyways ...

RE: saw this comming
By MScrip on 5/9/2008 4:33:17 AM , Rating: 2
I'd love for websites like Facebook to make money. But, we've had the web for 15 years... and no one can make any money on free web services. Could Microsoft make Facebook profitable?

D&M Holdings is good
By rupaniii on 5/8/2008 12:38:35 PM , Rating: 3
If Denon and Marantz really wanna marry into a polygamist relationship, Microsoft should be a sugar daddy.
Imagine a Denon branded, Microsoft owned and developed Media Center Reciever.
How about a Denon XBOX 360 Home Theater package.
It would be best for Microsoft to move more into territories they can develop. Media Center is always on the cusp of actually doing something, but, the OEMs never seem to get it in the living room. XBOX is well into the living room. Denon and those brands are definitely in the living room.

By wordsworm on 5/8/2008 9:16:19 PM , Rating: 2
Once you take out the fruit and nuts, the only thing left are the flakes.

By Staples on 5/9/2008 12:20:25 AM , Rating: 2
I think what MS paid for their 1.6% stake in Facebook is about what the company is really worth. Someone has to be mad to pay anything more than that for something that could go sour in just a few months time (and it eventually will). Something is burning a hole in Microsoft pocket and all they can come up with are terrible ways to spend tens of billions of dollars.

Yahoo is a sinking ship
Facebook is overvalued by 5,000% and I am sure it will sink way before Yahoo.

By mxnerd on 5/8/08, Rating: -1
RE: Focus
By kyleb2112 on 5/8/2008 12:02:34 PM , Rating: 5
Because that won't get the Death Star built.

RE: Focus
By KristopherKubicki on 5/8/2008 12:06:11 PM , Rating: 2
Like millions of college freshman throwing virtual sheep at each other will be much help there either ... ;)

RE: Focus
By akugami on 5/8/2008 1:35:57 PM , Rating: 2
That sounds like a great idea for a flash game if it isn't already.

RE: Focus
By lukasbradley on 5/8/2008 1:38:24 PM , Rating: 2
BRILLIANT! My team is starting NOW.

RE: Focus
By PICBoy on 5/8/2008 2:16:51 PM , Rating: 2
Nor the 2nd ;-)

RE: Focus
By wordsworm on 5/8/08, Rating: 0
RE: Focus
By mxnerd on 5/9/2008 12:30:48 AM , Rating: 2
Are you on drugs?

RE: Focus
By wordsworm on 5/9/2008 8:23:59 AM , Rating: 2
I guess you're not acquainted with the story "Three Billy Goats Gruff."

It's what the third billy goat says to the troll before he trounces him.

RE: Focus
By General Disturbance on 5/9/2008 10:14:36 AM , Rating: 2
Philistines, the lot of them. I rated you back up because it it was a great reference.

RE: Focus
By wordsworm on 5/9/2008 11:55:28 AM , Rating: 2
ty. I got a point taken off straight off the get-go on that one. I thought everyone knew the story. I always think of the billy goats gruff whenever I see what looks like a troll.

RE: Focus
By wordsworm on 5/9/2008 8:27:31 AM , Rating: 2
btw, you've got to be on drugs if you still don't realize that Vista 64 is far superior to XP in any flavor. Sure it sucks on a machine that has 1GB or less of RAM, but so does XP on 64MB. It's a big OS that depends on a middle end+ machine to run it.

RE: Focus
By mxnerd on 5/9/2008 11:27:10 AM , Rating: 2
After searched the web, now I know what you are talking about.

The problem with Vista, is that it still sucks even on brand new Dell computer. IE & Explorer crashed for absolutely no reason, not compatible with QuickBooks which a lot of business users use. Hard disk keeps spinning. An act like opening Event log takes forever, etc.

There are already several business users ask me to downgrade their Vista back to XP.

The Networking user interface is confusing at best.

I really can't think of anything good except the eye candy.

RE: Focus
By wordsworm on 5/9/2008 11:51:42 AM , Rating: 2
To be honest, I don't really know much about the eye candy. It looks pretty much the same as what I had XP set to. It's things like security, faster boot times, ability to control application volume via the OS on individual bases, I haven't played around with the networking at all since I don't have one. I don't have hard disk spinning problems. I haven't had IE problems, but I don't really use it because FF is still better.

Trust me when I say I'm not an MS fan - quite the opposite - especially after the way they were with Yahoo. But I stand by my opinion that Vista 64 is their best OS for a decent computer. My machine runs better than any other machine I've had before it. I usually spend about $2k every 3-4 years on new machines with upgrades every year on various parts.

One thing though, I've seen Vista Basic being sold on laptops last week with 2GB of memory. I was scratching my head because I thought Basic was capped at 1GB. My hatred for Vista involves the EULA and the way you *have* to be online for it to work. I'd like to buy my dad a new computer with Vista on it except for this fact.

"You can bet that Sony built a long-term business plan about being successful in Japan and that business plan is crumbling." -- Peter Moore, 24 hours before his Microsoft resignation

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