Microsoft's Misguided Investment in Facebook
By investing $240 million in Facebook for a 1.6% share of the company, Microsoft just gave the company a huge injection of cash to continue development of its popular social network. If Microsoft ever wanted to offer its own social network, it just gave its number one competitor enough cash to act on all of its ambitious development plans. Meanwhile, Microsoft received only a tiny share of the company in return.
What Microsoft did get in return is a long term contract on Facebook advertising which will help its advertising business compete with Google's. Personally, I think this was incredibly shortsighted. It's a perfect example of an investment by one part of the company shooting the foot of another part of the company.
Historically, Microsoft's most important asset has been its Windows API. While it has failed to move this API to the Internet (and is only now trying to do so with its Windows Live effort), it seems to be undervaluing the competitive nature of Facebook's own social operating system platform. While Facebook likely would have received cash from another company if Microsoft hasn't invested, I find it strange that Microsoft chose to directly invest in a company that represents a potential long range threat. Perhaps this is an example of keeping your enemies closer.