eMarketer on Microsoft-Facebook

OCTOBER 29, 2007

By Debra Aho Williamson and David Hallerman, Senior Analysts

When Microsoft Corp. paid $240 million for a 1.6% stake in Facebook last week, it acquired the rights to sell Facebook advertising around the world. With 34.5 billion page views in September, according to comScore Media Metrix, Facebook is now the fourth most highly trafficked Web property worldwide.

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Just how important is the international part of the equation? Facebook in September racked up 14.7 billion page views in the United States, comScore reported – just 43% of its worldwide total. Yes, the validity of the page-view metric is debatable, but for Microsoft’s sales organization, that is a flood of new inventory any way you look at it.

Monetizing that inventory is a question surrounding all social networking sites. How many of those page views of individual profiles and news feeds will attract advertisers, especially when measured against less risky options such as online video provided by established TV networks? While Microsoft may have a plethora of new inventory to sell against, it is worth asking whether the sales will be much more than low-CPM banners.

The good news is that consumers around the world are embracing social networking. According to Datamonitor, 75% of worldwide social networking members come from outside of North America.

Social networking penetration is already quite significant in Europe. In August, 78% of UK Internet users ages 15+ visited a social networking site, according to comScore. Half of German and French Internet users did as well.

Although Facebook is growing rapidly in many international markets, it will compete against MySpace and homegrown social networks such as France’s Skyblog.

Confirming the importance of the non-US market to social networking sites, MySpace CEO Chris DeWolfe told Bloomberg this month that the company will operate in 30 countries next year (from 23 currently) and could generate half its sales from outside the US by 2012.

So, as the quest for social network ad dollars continues to ratchet upward, the international market is looking more and more likely to be the source of the biggest revenue growth.