Internet search firm Yahoo is reported to be in talks to buy social networking website Facebook for $1bn (£527m).
Yahoo is reportedly in serious talks to acquire Facebook, a move that at least one analyst said would give the portal a needed boost in the fast-growing market for online social networks.
Facebook, a popular site among millions of college students, is considering selling itself to Yahoo for what could approach $1 billion, the Wall Street Journal said, quoting people familiar with the talks.
Facebook, which has been at the center of takeover rumors for months, also held separate discussions with Microsoft Corp., the world’s largest software maker, and media conglomerate Viacom over the past year, the Journal reported, but those talks failed to advance, citing people familiar with the matter.
In March, BusinessWeek reported that the company had turned down a $750 million offer and hoped to fetch as much as $2 billion in a sale. It has been separately reported that Viacom held talks to buy Facebook.
Social networking sites typically allow users to create and share blogs, pictures and videos with friends and the wider public, recently signed an advertising deal with Microsoft. Facebook caters primarily to U.S. College students but recently announced plans to open its site to admit outsiders.
Facebook in May was the third largest social network on the Web, followed by No. 1 MySpace and Classmates.com, according to ComScore Networks. Such sites have become advertising magnets because of their coveted audience of teenagers and young adults.
Last month, Facebook signed a deal giving Microsoft exclusive rights to sell and display banner ads and sponsored links on the site. Although financial details were not disclosed, the Journal quoted sources saying “Microsoft promised to deliver $200 million worth of ads over three years.”
The Facebook-Microsoft deal followed by two weeks Google’s agreement to pay News Corp. $900 million over three years to provide search and distribute advertising on MySpace.
The sector drew investor attention when News Corp. bought “MySpace for $580 million” last year, and General Electric Co.’s NBC Universal bought women’s online network “iVillage for $600 million” earlier this year.
Yahoo has built a strategy of drawing Internet users and advertising through building community-based services on the Web, but acquisitions so far have been on a small scale.
Microsoft has cultivated a following among young video-gamers with its Xbox consoles and has built an Internet video-sharing service to lure Web advertising dollars.
David Card, analyst for JupiterResearch, said Yahoo would be a good home for Facebook, because of the entertainment portal’s solid infrastructure for delivering targeted advertising to groups of consumers. In addition, Yahoo would offer entertainment advertising and promotions, and the ability to integrate its instant messaging and email services, which are some of the world’s largest networks.
For Yahoo, “Facebook, which has more than 9 million unique visitors,” would bring a ready-built social network that the portal has not had much success in building on its own. "Yahoo 360 does not seem to be going anywhere for older teens and young adults," Card said in his blog.
Facebook, based in Palo Alto, California, was founded by Harvard student Mark Zuckerberg and two fellow students with an eye toward creating casual but semi-exclusive networks of friends — and friends of friends.
It took off on college campuses in the wake of the rapid rise and subsequent decline of Friendster, the pioneering social network in 2004. In two years, it has become the primary online meeting place for a generation of U.S. college students.
Social networks that rise quickly can also fall just as fast. Friendster, an early leader in the market, is one that fell from grace almost overnight to competitors, such as MySpace, the largest social network on the Web with more than 66 million unique visitors, according to ComScore Networks.
Microsoft’s talks with Facebook broke down, because the site had wanted $2 billion, according to the Journal. Nevertheless, Microsoft would benefit from such an acquisition in ways similar to Yahoo, Card said. "One could say all the same things about Microsoft."
The phenomenal growth of startup social networks has been a key attraction to investors and the largest Internet and entertainment companies. In April, the top 10 social-networking sites attracted 45 percent of all Web users, Nielsen/NetRatings said.
Nevertheless, long-term growth, and a return on investment, is not guaranteed, given the fickleness and passion of the audience. Facebook, for example, sparked a rebellion among hundreds of millions of registered users after it instituted new features that they considered an invasion of privacy. To quell the uprising, Facebook founder Mark Zuckerberg apologized, and the site gave users the ability to opt out of having their activities automatically broadcast to other members.
The Wall Street Journal article quoted Zuckerberg as saying: "I would never say that at no point in the future would we go public or become part of a larger company … but what I would say is — it is not our priority."
Officials at Viacom, Yahoo and Facebook could not immediately be reached for comment.