Microsoft has an advertising deal in place with the Facebook social networking site, and if Facebook goes to Yahoo or anyone else they will have to pay Microsoft a “breakup fee.”
Yahoo has been prominently discussed as Facebook’s buyer. That would involved a 10-digit price tag for CEO Terry Semel and company to get past the board of directors. Such a blockbuster deal would run counter to what has been Yahoo’s strategy in practice, which involves purchasing smaller startup firms for a few million dollars.
Those purchases have helped Yahoo assemble a foundation of social media applications to go with their existing communication products for email, instant messaging, and blogging. Yahoo is one of the most heavily visited destinations on the Internet already and has been for some time.
Some have cited pressure on Yahoo to do more in the social networking space. Despite Yahoo’s acquisitions, revamps to its video service, and the success of Yahoo Answers, highly publicized deals like Google’s $900 million partnership with MySpace have grabbed attention.
Before Facebook opened its network to users beyond the college and high school markets, its membership hovered around 9 million. MySpace has several times that number of members, yet Yahoo would pay a vastly higher premium per member for Facebook’s highly coveted young demographic.
Even though Facebook’s ranks have swelled with new users, the college/high school network is separated from the network’s new users who do not have a .edu email address. The increase in membership does not change the main appeal of Facebook to advertisers, which is the education market.
Yahoo has a lot of talented developers building and rebuilding its services, as well as integrating acquisitions like the newly purchased video editing service, Jumpcut. The company also has seen delays in launching its new advertising service, and weakness in its branded advertising sales to financial and automotive advertisers.
While Yahoo can afford the billion-dollar price tag for Facebook, it is more a question of whether they should rather than whether they need to buy the social networking site just to reacquire members who may already number in Yahoo’s membership. That looks like a tough sell today, but who knows? The Internet industry is a strange beast to watch sometimes.
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David Utter is a staff writer for murdok covering technology and business.
