After Yahoo Microsoft Eyes Facebook, Others

Microsoft made informal overtures to Facebook, the white-hot social-networking site, according to The Wall Street Journal. Sure, nothing will probably come of it, if only because founder and Chief Executive Mark Zuckerberg seems nowhere near ready to sell his baby. Let's hope for the sake of Microsoft investors that does indeed become the case.

A Microsoft acquisition of Facebook isn't nearly as bad an idea as buying Yahoo, but it still isn't a particularly good one. Yahoo was a bad bet for any number of reasons, including a prolonged regulatory and integration process, sagging market share and incompatible back-end technology. And let's not forget the fact that most mergers just fail, especially when trying to mesh two corporate cultures that go together about as well as peanut butter and ketchup.

True, Facebook as a target and a business offers a lot that Yahoo doesn't, not least of which is that it is actually robust and ascendant in its industry. Facebook would also be a lot cheaper than Yahoo. When Microsoft plunked down $240 million for less than 2% of Facebook, that made the company worth, theoretically at least, about $15 billion. That's but a third of what Microsoft was going to shell out for Yahoo.

But if Microsoft were to get Facebook, the risk is very great that it would simply bungle it up. The greater question, and risk, is whether Facebook will even be worth owning in just a few years' time.

As to the first risk, let's face it: So much of what Microsoft makes itself, its so-called core competency, is disappointing. It's as if its products are designed by engineers for engineers. It's software by Mr. Spock, unable to apprehend our illogical human emotions. Vista, if not outright despised, is certainly unloved. The same goes for Office 2007, where the new user interface makes the simplest tasks harder, not easier, to perform. (Where did that damn "Save" button go?)

Despite those limitations, Microsoft is not stupid. It sees the future, the move to "cloud computing," where applications such as word processing, spread sheets and presentation software reside on servers, accessed through web browsers. It's a huge threat to Microsoft's cash cow of Word, Excel and PowerPoint — software that users buy upfront or license and install on their hard drives. Microsoft rules the desktop, but the world is moving online.

And, yes, Microsoft's come from behind before, bundling its Internet Explorer web browser with its dominant operating system to unseat — and eventually destroy — Netscape. But things are different this time around. Regulators, especially in Europe, are more vigilant with regard to Microsoft, watching closely for signs of anticompetitive behavior. The competition's gotten stiffer, too. Google (GOOG) is far more powerful, dynamic, rich and resolute than Netscape ever was.

Still, the same problems that existed 15 years ago remain in force today: It's one thing to amass hundreds of millions of eyeballs; it's quite another to actually make money off them. News Corp. (NWS) is re-learning that lesson with MySpace, as is Google, which pays News Corp. for the privilege of trying to monetize the social-networking site. (News Corp. is the parent company of Dow Jones, co-owner of SmartMoney.com.)

It turns out that, so far at least, it's pretty difficult to make money from a social-networking site. Facebook's Beacon program has flopped. Sure, maybe it'll succeed farther down the line. And maybe MySpace, Facebook, Microsoft, Google, et. al., will crack that nut and social networking will become a cash cow.

Then again, maybe people tooling around on social-networking sites just can't be monetized. Perhaps they'll never be much interested in clicking on ads. Perhaps they're too engrossed in updating their profiles, gossiping with friends and trying to hook up. Maybe the younger generation, raised on the net, is too inured to web-based advertising to let it impinge on their rich, online social lives.

And then there is the greatest, potentially most painful, unknown. Perhaps Facebook is — dare we say it? — a fad. Not too long ago MySpace was the hot property. Not much longer back AOL was an industry leader. Prodigy. CompuServe. AltaVista. The short history of the web is littered with can't-miss failures. Maybe Facebook will have staying power where others have withered...like Yahoo. But it's hard to see how the Vulcans in Redmond could help forestall the kids moving on to the next cool thing.

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