Microsoft Wins Facebook Faceoff

The brainchildren of two of Harvard’s most famous dropouts—one conceived more than three decades ago, the other three years ago—united yesterday in a deal that places a $15 billion value on an online experiment launched from a Kirkland dorm room.

Microsoft announced yesterday it would invest $240 million for a 1.6 percent stake in Facebook, putting an end to a bidding war over a share in the popular social networking site.

Mark E. Zuckerberg, formerly of the Class of 2006, founded Facebook in 2004 with $1,000 in start-up money and dropped out of Harvard his junior year to run the company full-time. He currently maintains 20 percent ownership of the company, giving him a theoretical net worth of $3 billion.

After founding Facebook, Zuckerberg strove to maintain the site’s independence, saying he was not looking for investors.

“I would just rather be dependent on ourselves,” Zuckerberg told The Crimson in 2005. “Most businesses aren’t like a bunch of kids living in a house, doing whatever they want, not waking up at a normal time, not going into an office, hiring people by, like, bringing them into your house and letting them chill with you for a while and party with you and smoke with you.”

The deal also represents a victory for Microsoft, founded in 1975 by Harvard dropout Bill Gates, over rival firms Google and Yahoo, which also sought to work closely with Facebook.

As part of the arrangement, Microsoft won the position of “exclusive third-party advertising platform partner for Facebook,” according to a statement. The company will now sell the banner ads appearing on Facebook outside of the United States and will share the revenue generated by that advertising.

Last year, Microsoft contracted an agreement to run banner ads on Facebook in the United States through 2011.

“Microsoft has a lot of cash. Facebook has enormous growth prospects. It’s a smart investment deal from both sides,” said John G. Palfrey Jr. ’94, the executive director of Harvard Law School’s Berkman Center for Internet & Society.

“Microsoft has been much more wealthy in terms of cash than in terms of new ideas for a while,” he said, “so I think it’s great news for them that they’ve been able to tap into the social movement that Facebook represents.”

Zuckerberg has come a long way from his college dorm days, when he seemed to have a very different perception of the corporate world.

“I always pictured it like some older people who, like, take themselves really seriously and have lawyers do everything and try to like write contracts that are just really advantageous to them,” he told The Crimson in 2005.

“And like, I’m kind of learning, that’s not it,” he added.

—Staff writer Margot E. Edelman can be reached at medelman@fas.harvard.edu.