Facebook Incorporates Microsoft Live Search: Good Move, but No Silver Bullet for MSFT

What took Facebook so long to incorporate Microsoft Live Search? Could it be because Redmond's been a little distracted lately?

In any event, the deal announced yesterday, which will bring Microsoft Live Search (MSFT) and search advertising to Facebook's 90 million users, makes sense for the software giant, even if it does feel kind of like a consolation prize in the wake of the company's failed bid for Yahoo (YHOO)

Still, the move -- taken together with yesterday's reorganization announcement and the jettisoning of Kevin Johnson, who led the Yahoo bid -- shows that Steve Ballmer is serious about moving ahead without Yahoo. Live Search will be integrated into Facebook by the end of the year.

Financial terms of the deal weren't disclosed, and one has to wonder how it compares to Google's agreement to serve ads on MySpace, which includes $900 million in guaranteed payments to News Corp.'s giant social network. (Last fall Microsoft invested $240 million to obtain a 1.6 percent stake in Facebook which valued the social network at $15 billion.)

In fact, if Google's (GOOG) deal with MySpace is any indication, Microsoft should not view its search pact with Facebook as the solution to its online woes.

Google has said repeatedly that it still hasn't found the most effective way to monetize MySpace's huge traffic. And that's Google, the search advertising leader. It's hard to see how Microsoft will fare any better with Facebook, given that its search advertising technology is inferior to Google's.

Then there's the more fundamental issue with advertising on social networks. Unlike Web search, which people use, by definition, because they're looking for something -- often it's a product or a service -- people generally use social networks to, well, socialize.

Advertising naturally complements Web search in a way that it just doesn't on social networks.

Facebook thinks it can make money essentially by inducing users to buy things their friends have recommended to them, but that model is a long way from being realized.

So ultimately, this move makes sense for Microsoft, but I can't imagine that Google is sweating it too hard.

Comments

[Tom B]

Further evidence Facebook is well past its prime. The people who started with Facebook are now adults, in the workplace, and are using adult networking sites like Linked-in.