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How to forge partnerships: This backstory of Facebook and Microsoft partnership will help you get deeper perspective
A few days after I joined as head of biz dev at Facebook in 2006, MySpace announced a partnership w/Google worth $1B. I sent an internal email suggesting we pursue a similar deal and Zuck gave me a hunting license. Here’s how I signed the biggest deal of my career with Microsoft:
Microsoft had been left at the alter with MySpace. They bid more than Google for the right to run banner ads, but MySpace was owned by NewsCorp and Rupert liked Google better. Ballmer was reportedly very upset about losing, so my first call was to some folks I knew at Microsoft.
MySpace had 10x more users than Facebook at the time, but we were #2 and growing. I told Microsoft we could be their “rebound date,” but they had to move fast because Google was also pursuing us (which was true). I didn’t mention we were wary of Google’s competitive ambitions.
Microsoft did move fast. They were starting to believe ads could be an existential threat to their software business, and they understood that scale mattered in building an ads platform. There weren’t many deals left that could give them scale in web-standard banner ads.
We had been selling banner ads in our left column, yielding low CPMs + low quality ads. Our COO Owen Van Natta told me to get 30 cent CPM guarantee for that space, substantially more than what Google gave MySpace. Owen was the best negotiator I ever met, great at pushing limits.
Days earlier Microsoft had lost the MySpace deal to Google. This time they hit our bid on the spot, and Ballmer told his team to get the deal done before another one slipped away. A week later we had a signed contract worth hundreds of millions of dollars.
A few weeks later I was briefing Zuck on the deal. I proudly explained how much money we were making already from Microsoft on our guaranteed CPM. Zuck stopped me and asked “how’s it working for Microsoft so far?” I knew in that moment I would work with this guy for a long time.
Microsoft contributed most of Facebook’s revenue over the next couple of years. They were able to break even on our guaranteed CPM, which they viewed as a win since their primary goal was getting scale. At the same time, Google lost a ton of money on a MySpace deal that unraveled
Why did we outsource our early ads biz? We knew banner ads weren’t strategic for us. This deal gave us learnings and guaranteed revenue which we invested in R&D to develop social feed ads. We were transparent with Microsoft about our strategy and they were happy with the trade.
A year after we signed that initial deal, we expanded the scope internationally and Microsoft led our Series C at $15B valuation (which eventually worked out great for them). We were close partners for many years, in part because we found mutual alignment in our fear of Google.
Partnerships are hard. When I was doing BD at Amazon, we signed multiple deals that ended in lawsuits. At Facebook we thrashed developers over the years as we pivoted our platform strategy, which gave everyone a lot of heartburn. But good partnerships can be transformative.
Good partnerships maximize value for both sides with minimal waste. If you are bargaining over an orange, one resolution is to slice it in half. But if you dig deeper into motivations of each side, you might find one party cares about the meat while the other cares about the rind
Despite risk of failure, good partnerships are worth pursuing. Always look for optimal solutions, keep digging until you find them. Push your limits on leverage, but leave value on the table. And after you sign a deal, always ask yourself “how’s it working for the other side?”