Microsoft Puts Money Down on Web 2.0 Trend

Microsoft’s agreement to purchase 1 percent of Facebook for $240 million might go way beyond the immediate need to compete more heavily with Google in the online advertising space. Analysts say the deal, coupled with two quieter announcements that Microsoft plans to help two online application vendors integrate their wares into Microsoft’s Sharepoint platform for online collaboration, shows the technology giant believes Web 2.0-inspired technologies are here to stay.

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On the surface, the deal fills Microsoft’s need to land a small fraction of Facebook so it can increase its share of advertising on the rapidly growing Facebook platform, which has about 30 million members. Back in August, Facebook and Microsoft announced a partnership by which Microsoft would help bring relevant advertising to Facebook users. In this context, Microsoft’s latest investment in Facebook solidifies a relationship between the two companies while also grabbing online advertising real estate that its rival Google would like to get.

Analysts point out that the deal could be the start of something even bigger. They say if Microsoft and Facebook can collaborate on advertising, there’s no reason to believe they couldn’t incorporate a Facebook-like application into SharePoint, Microsoft’s portal-based server that allows companies to manage shared documents and run collaborative technologies such as a blog or a wiki. The future result could be more robust Web 2.0 offerings that corporate IT departments offer under the comfort and familiarity of a Microsoft environment.

“Right now, the Facebook deal is really motivated by the consumer and marketing side of things, and to really get [Microsoft’s] ad platform up and running” in the social network space, says Oliver Young, an analyst at Forrester who researches Web 2.0 technologies in the enterprise. “But if that relationship goes well and continues to deepen, I think we could see some cross-pollination between Facebook and SharePoint.”

Young’s assessment can be backed up by two announcements this week that flew under the radar because of the Facebook announcement. At the Web 2.0 summit in San Francisco this week, Microsoft announced that it would help Atlassian, a provider of enterprise-grade wikis, and NewsGator, a popular RSS tool, integrate their applications with SharePoint. For Microsoft, the announcements show they’re willing to incorporate best-of-breed Web 2.0 technologies rather than only provide their own applications atop the SharePoint server, which Young says have been adequate but not exceptional.

So far, applications to help bloggers or wiki contributors built up on SharePoint have been “really clunky,” he says. “They’ll get the job done, but not in particularly elegant way.”

Pure play Web 2.0 vendors, meanwhile, spend all their time trying to perfect these technologies in the workplace. Jeffrey Walker, president of the $25 million Atlassian, says that although his product (an enterprise wiki) is run on Java, Microsoft has shown a willingness to help bridge the application to SharePoint because its wiki offerings lack the robust functionality of Atlassian. “It’s fair to say Microsoft’s wiki is a bit rudimentary,” he says. “Microsoft came to us and we’re actually very like-minded.”

Walker says the advantage Microsoft (or other incumbents) might find in partnering with narrowly focused vendors is that the entities stand on opposite sides of an IT political struggle caused by the consumerization of corporate technology. With older workers being brought up using Microsoft applications, and younger workers comfortable with blogs and wikis, offering the latter in a Microsoft environment could satisfy both groups.

“We both serve different constituencies,” says Walker. “Now, by eliminating political friction, we can connect those constituencies.”

For Microsoft, it could be years before such an arrangement happens with Facebook, but having the initial deal this week could make such a possibility a reality, according Forrester’s Young. But with Microsoft’s deep pockets, there isn’t a huge rush for that kind of progress, says Stowe Boyd, a Web 2.0 expert who runs a consultancy, The Messengers, and pens a blog on Web 2.0 and other technology issues.

“It’s a small amount of money for them,” says Boyd. “They’re probably not thinking of it necessarily like an investor, where they expect a certain amount of money back by a certain number of years. They could also just be trying to keep someone else from getting it.”

That “someone” is likely Google. Forrester’s Young says there hasn’t been a tangible reason given by the principals, despite questions at their press conference, for why Facebook chose Microsoft instead of the Google. Notably, 23-year-old Facebook CEO and founder Mark Zuckerberg, reportedly turned down.

a $1 billion offer for the social networking site from Yahoo! last year.

For now, critics such as Young, who dismissed Zuckerberg’s earlier actions in rebuffing Yahoo as hubris, acknowledge that may have been a misjudgment. “I certainly believed he’d been holding out too long,” says Forrester’s Young. “But he made the gamble, and it certainly appears to have paid off.”

Microsoft hopes it will, too.