Should Facebook Spend More Money on Advertising?

Following the release Facebook’s (NASDAQ:FB) fourth quarter earnings results, which showed how much the social network had spent to boost its advertising revenue, the company took a few knocks; its stock price slipped back below $30 per share and its was hit by a slew of analyst downgrades. But those setbacks have not stopped Facebook from considering spending more money to boost its advertising.

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Microsoft (NASDAQ:MSFT) is expected to announce a sale of Atlas — its ad-service business — to Facebook as early as next week, reported AdAge on Thursday. Microsoft has long been searching for a means to unload the division, and for the social network this could be an opportunity to acquire an advertising platform to compete with Google (NASDAQ:GOOG). The terms are not yet known, but Microsoft may unload Atlas for less than $100 million, as prior bids have been in the $30 to $50 million range.
If Facebook does acquire the Microsoft unit, it would be a significant indicator that the company has designs on becoming a much larger participant in Internet advertising than it already is. Already, Facebook is building a structure for an off-platform advertising network. However, that is not the only reason it is after Atlas; the ad server would allow brands and advertisers to use Facebook to measure the effectiveness of their campaigns, proving the value of its vast store of user data. In addition, it would make intermediaries unnecessary, as the company would be expanding vertically.

While Atlas has courted other interested parties, like AT&T (NYSE:T), its market share has suffered in the face of the success of Google’s Doubleclick for Advertisers. For Microsoft, which landed Atlas as part of its $6.2 billion aQuantive acquisition in 2007, the deal would enable the company to focus on its more profitable business. Facebook is a rising competitor against Google, which gives Microsoft further incentive to consider a proposal from the social network, as Microsoft is both a Facebook investor and a rival of Google as well.

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