Is Investing in Facebook Worth it to Microsoft Just to Get International Remnant Inventory?

Nate Elliott | October 25, 2007, 11:45 AM

Battelle wonders what's in the Facebook equity deal for Microsoft, and I understand where he's coming from. Obviously, if Microsoft gets (as he puts it) "insight/boxing out/exclusivity," then this partnership is very valuable for Microsoft. But Battelle says this deal isn't worthwhile if it's just about remnant inventory in Europe. I'm less pessimistic than he is on that second point. That European remnant inventory is worth a lot more to Microsoft than Battelle thinks. And it's definitely worth more to Microsoft than it is to Google.

Sure, Google is dominant in the US: according to Nielsen, they account for 54 percent of all US search traffic (compared to 12 percent for Microsoft's search properties). But I don't think most of the US-based commentators understand how much more dominant Google is in Europe. According to Hitwise, they claim almost 80 percent of all search traffic in the UK (compared to 5 percent for Microsoft). According to Xiti, Google claims almost 90 percent of all search traffic in France (compared to 2 percent for Microsoft). In Germany, says Webhits.de, Google again has close to 90 percent of search traffic (compared to 1 percent for Microsoft). Microsoft are getting hammered by Google in European search share.

MSN's portal and content traffic looks much better than their search traffic -- according to Nielsen they're the #2 web property in all three of those countries -- but after the sales team does their stuff, only some of that portal inventory will filter into the bid-based marketplace (ie AdCenter), whereas I'm guessing much more of Facebook's inventory will end up there. And in any case, MSN still lags Google on reach in each market.

We're in the final stages of our new European online ad forecast now, and the search revenue numbers look pretty similar to the search usage numbers. With usage that skewed, Google is the only "must buy" ad platform in Europe. And in my conversations with search marketers and SEM agencies, it's clear that a larger percentage of search marketers -- even intelligent, sophisticated ones -- only bid in Google. That's simply not the case in the US, where smart search advertisers have to bid in at least two platforms (Google and Yahoo), and more and more are buying from Microsoft as well.

So if you're Microsoft, and your search business isn't generating much European inventory or European advertiser interest for AdCenter, a deal like this gives you a much better story to tell. As I said last night, Facebook's European inventory should help significantly extend
AdCenter's reach and volume in the UK -- and when you've only got 7 percent as much search traffic as the leader, finding sufficient reach and volume for your ad platform are a real concern.

Of course, all that aside, I agree with Battelle on this point as well: after losing deals with AOL, MySpace, YouTube, and DoubleClick, this might just be about Microsoft desperately wanting to win first prize for a change.

Again, if you're a client and want to talk about this, email inquiry [at] jupiter research - dot - com -- or if you're press and want to talk about this, email presseurope (at) jupiter research *dot* com.