A news editor at CNBC has let slip details of a report that Microsoft may be considering swapping Bing for Facebook shares, after the upcoming Facebook IPO. The source of the information wasn’t mentioned and it’s speculated to be from the anonymously authored Kindle e-book, just out, called “The Facebook IPO Pitch”.
Before more details come out about the source of the report it is interesting to see how this sale or trade could make sense for both parties. Only a week or so ago Microsoft bought 800 patents from AOL which could be used to protect its partner, Facebook, from social networking litigation. So that shows the two companies are quite strongly entwined. Another example of their collaboration is the Facebook and Skype connection.
Facebook is looking at improving its search capabilities and Microsoft is losing $2.5 billion a year from funding the Bing search engine. Facebook already utilises Bing results in search but full ownership of Bing could help Facebook integrate it further into Facebook and optimise it more for its users.
Senior Microsoft analyst at investment company Nomura, Rick Sherlund, says the deal would be good for both parties; Microsoft would save money and Facebook will have more ammunition against its rival Google. Mr Sherlund explains: “It’s in Microsoft’s relative advantage to arm Facebook to go after Google more effectively than they could on their own.” Facebook’s access to user profiles alongside the Bing search engine could make it more effective for targeted advertising than the Google alternative. Better targeting means more effective advertising and more income. Microsoft would still be able to monetise Bing searches though an agreement with Facebook just like Apple makes money from Google search right now.
As for the price, Mr Sherlund estimates Microsoft could raise approximately $2 billion from the sale in cash or Facebook shares. That’s better than losing $2.5 billion a year to fight Google, keeping in mind “The enemy of my enemy is my friend”.