Facebook Really Is Copying AOL's Playbook
Back in late June, Jason Kottke wrote a oft quoted post called Facebook is the new AOL. In that post Jason argued that building apps for Facebook's platform isn't much different than building apps on AOL's Rainman platform back in the mid 90s.
I am not sure I totally buy Jason's argument, but he certainly put out a point of view that was important in the ongoing debate about the value of building Facebook apps.
But today we saw that Facebook is certainly copying parts of AOL's playbook. Back in 2005 (seems like so long ago now), AOL ran an auction between Google and Microsoft to be AOL's new search partner. Microsoft had the inside track early on in the negotiations according to friends of mine who were involved. But Microsoft got hung up on parts of the deal, and Google caught wind of the transaction and used their money and incumbent position to steal it away from Microsoft and placed a $20bn valuation on AOL by investing $1bn for 5% of AOL.
So the news that Facebook is talking to Microsoft about buying 5% of Facebook for $500mm seems like deja vu all over again (to take a great line from Yogi Berra). The 5% number is the same. The billions of dollars of valuation is the same. The fact that Microsoft is the incumbent this time may mean this plays out differently. I'll bet that Microsoft wins the deal and that Google's in it to play the spoiler more than to win this deal.
The news last week that Google is readying a Facebook competitor could prove to be an interesting factor in this process. Would Facebook take an investment from a company that is planning to compete with them? That's certainly not the definition of an ideal partner but stranger things have happened.
I think the valuation, which many are focusing on, is not the issue to pay attention to here. The $20bn valuation that Google paid for AOL wasn't a real price and the $10bn valuation (or more or less) that is being discussed isn't real either. By "unreal" I mean that it's unlikely that financial investors would pay that price or that anyone would pay that much to buy the entire company right now.
But the strategic partner that Facebook takes money from will be important as it continues to develop its business. That's the part of this process that bears watching.