Microsoft has recently purchased 1.6 % stake in Facebook for $240 Million. A surprising fact here is that Facebook, about 3 ½ years old, doesn’t have annual revenues of even $200 Million.

This is believed to be Microsoft’s response to Google’s recent major acquisitions of YouTube and DoubleClick Inc. However, it turns out that the other side of the coin has a lot to do with Microsoft internet advertising plans. Also, this investment by Microsoft just goes to say that social networking – dating, friendship, photo sharing, etc. is valuable and is here to stay.

It’s amazing to note that Facebook, which started in a dorm room in Harvard University, has been valued at $15 Billion, thanks to Microsoft. One more important thing to note here is that Facebook is the second largest social networking website, after MySpace, which was acquired by News Corp. a couple of years ago, for $580 Million.

Microsoft is relying on Facebook’s reach and popularity, which it believes can help them sell more ads online, something Google is better than them at. In June 2007, online advertising revenues of Microsoft stood at $1.84 billion, an annual rise of 21 percent. During the same fiscal year, Google’s online advertising revenues rose to $13.3 Billion, a good 64 percent rise.

Facebook is expected to attract about 300 million users in a few years from now, worldwide. This gives Microsoft enough opportunity to see returns on its investment. Kevin Johnson, who heads Microsoft’s platforms and services division, said, “We are pleased with the economics of this”. Investors dealing with Microsoft were a happy lot, as the company’s shares rose by 35 cents, following the deal. Another thing that Microsoft appears to be impressed about is the successful “widgets” of Facebook. Microsoft also plans to do more business with Facebook than just advertising, but no details were given.