Those of you hiding under a rock today no doubt still heard the news that Microsoft invested $240 million in Facebook for a mere 1.6% of the company, giving Facebook a hefty $15 billion valuation.
This investment begins a period that will truly define Facebook’s fate. Right now, the company is on top of the world – phenomenal membership growth, massive valuation, and sexy enough to attract Silicon Valley’s brightest – even from Google – to join and grow the company.
But contrarian that I am, I have to point out three major challenges Facebook now has in front of it.
1. Will Facebook Users Embrace Microsoft? With this investment, Facebook is no longer the hip community founded by and for college students. It’s big business. There is no longer anything counter-culture about Facebook. So the question is: how will Facebook’s core users react? Will 20-somethings want to be part of a community that is backed by Microsoft, formerly known as the evil empire?
A potential analogy here might be Barack Obama. When Obama was a ‘potential’ candidate, he was cool, hip and had tremendous buzz. Now that he’s an actual candidate, however, many people see him as just that – a political candidate. It’s hard to keep your ‘outsider’ street creds when you are in the midst of a race to be the ultimate insider. Will Facebook suffer the same fate?
2. Will Facebook Users Embrace Monetization? Despite the good work of the Bill and Melinda Gates foundation, Microsoft as a company is all about money. Suffice to say, to value Facebook at $15 billion, Microsoft is betting that Facebook will find a way to turn eyeballs into dollars.
And it therefore comes as no surprise that Facebook is planning a big upcoming advertising announcement in the near future. While savvy Facebook users have no doubt expected this for some time, it’s an open question as to how they’ll react when part of Facebook’s real estate starts to be paid space. After all, these are the same people who went bonkers when Facebook introduced the “newsfeed” a few months back.
3. How Will Google Fights Back? OK, Microsoft *finally* beat Google out for a deal. Good for Microsoft, it’s about time. Now Google is in a new position as a company – what to do when you lose an acquisition/investment play. This loss is not going to go down easy over at the Googleplex, both because they see Facebook as a threat and because they absolutely hate Microsoft.
Google is going to react to this move, and likely react aggressively. Indeed, it’s already been suggested that Google may be launching an open source platform to rival Facebook in a matter of days. The tenuous friendship between Facebook and Google may be officially over, and Facebook needs to brace themselves for a potential battle.
I’m not suggesting, of course, that it’s all downhill from here for Facebook, merely that the greater your success, the greater the challenges. Google is an example of a company that faced these threats (adding paid ads to their site, grappling with the silly ‘don’t be evil’ mantra, fending off attacks from Microsoft and Yahoo), and has clearly come out the other end quite nicely (market cap bigger than Citibank or WalMart – I call that a success). But once you get to the top, everyone wants to bring you down. In the coming months, we’ll see how Facebook deals with the pressure.