A ROAD WELL-TRAVELLED
The Wall Street Journal tells a cautionary tale around the reported discussions of Facebook potentially negotiating a 5% investment stake from either Microsoft or Google, at a valuation upwards of $10 billion.
It compares the potential Facebook transaction with the acquisition of Geocities in the mid 1990s by Yahoo! for $4.7 billion.
Even though the Geocities of 1994 may be portrayed as an early version of the Facebook of today, the two situations may be apples and oranges. Geocities was acquired in whole by Yahoo!, whereas Facebook is reportedly contemplating a minority investment by a major incumbent on it's way to a presumably successful IPO.
To me the potential investment by Microsoft is more like a similar investment in 1995 by Microsoft in UUNET, a leading ISP, before it's successful IPO later that year. The minority investment, along with an agreement for UUNET to help build out the dial-up network for Microsoft's budding MSN service, helped UUNET become the leading ISP in the U.S. over the next few years.
By way of background, I was closely involved with the Geocities, UUNET and Yahoo! IPOs as the lead equity research analyst, and covered them all after their IPOs as a research analyst.
The Wall Street Journal does a good job characterizing Facebook founder Mark Zuckberg's ambition in all this:
"Mr. Zuckerberg isn't gunning for just wealth. He's gunning for wealth and legacy"
In that context, the steps Facebook may currently be taking in seeking a minority investment en route to a future IPO, is a path that has good precedent in internet history.