Tempting Zuckerberg

So it's not really a shocker to hear that Microsoft, lacking a foothold in the social scene, is considering a substantial investment in Facebook, which has designs on becoming something like a Web operating system. What has raised some eyebrows -- and some red flags -- are the numbers being bandied about. According to the Wall Street Journal, Microsoft is talking about taking a 5 percent stake in Facebook at a price between $300 million and $500 million, which, on the top end, would value the social site at a whopping $10 billion. And should Google pursue its own rumored interest in a piece of the Facebook action, the bidding could push that valuation up by $5 billion more.

Will Mark Zuckerberg, (official founder of Facebook) be able to hold back this time…?

That kind of money buys a lot, not all of it good. Facebook offers growth, a flexible platform, continuing innovation (a beta IM client is coming Friday), and a whole lot of the page inventory and sticky users that advertisers crave. But it also brings a running dispute over its creation, privacy concerns, and, as of yesterday, an investigation by the New York Attorney General's office into whether the site does enough to protect users against sexual predators.

So are those big numbers totally out of line? Apparently not, if you broaden the definition of value. There's a lot of strategic value beyond the pure financial value in an investment like this. There's not a lot of a zero-sum games, but there's only one home page. There's only one thing that is the first thing you see. ... That's what I think is the strategic value, and I think Microsoft needs it more than Google" - as Jeremy Lew of Light Speed Venture partners says.

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I am not too sure about that. May be I am from the old school. I still believe bidding frenzy should never outdo valuation math.

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