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Microsoft-Facebook alliance may be aimed at Google

Facebook announced Monday it would pay Microsoft $550 million for patents the software giant acquired from AOL. KIMIHIRO HOSHINO/AFP/Getty Images

SEATTLE - A plan by Facebook to acquire a broad range of patents through a deal with Microsoft is on its surface yet another twist in the battles over intellectual property engulfing the tech business.

But the subtext of the deal is a different story, showing how two of technology’s most powerful players are teaming to create a greater balance of power on the Internet - a market that has been tilted decisively in favor of one company, Google, for years.

“This is almost certainly a move against Google,’’ said Rebecca Lieb, an analyst at Altimeter Group, a research firm.

The agreement between Microsoft and Facebook, announced Monday, came less than two weeks after Microsoft agreed to pay more than $1 billion for 925 patents held by AOL. In a second deal, Microsoft said it had turned around and sold 70 percent of those same patents - about 650 in all - to Facebook for $550 million in cash, along with rights to 275 AOL patents that Microsoft plans to retain.

While Facebook and Microsoft have not determined precisely how they are going to divvy up the patents, it is expected that Facebook will end up with patents involving mobile, Web, and instant messaging technologies.


Microsoft is likely to keep AOL patents involving search, among other things.

The arrangement will help Facebook bulk up its intellectual property portfolio before its initial public offering, which is expected next month, and it is a further sign of the growing importance of stockpiling patents in the arsenal of any big technology company.

“This is another significant step in our ongoing process of building an intellectual property portfolio to protect Facebook’s interests over the long term,’’ Ted Ullyot, general counsel of Facebook, said in a statement.

The deal could also give Facebook additional ammunition in its escalating patent feud with Yahoo. Yahoo sued Facebook earlier this year, claiming violations of Yahoo patents, many related to online advertising. Facebook subsequently countersued Yahoo, in a pattern that is playing out again and again in different parts of the technology business, especially the mobile phone market.


But in large part the deal is evidence of how Microsoft and Facebook have gravitated ever closer to each other in part because of a common enemy, Google.

Google has menaced Microsoft’s business on a number of fronts, including with free online Google applications that compete with Microsoft Office and with Android, a mobile operating system that competes with Microsoft’s Windows Phone software.

As Facebook has evolved into a Web behemoth, with 900 million active monthly users, Google has become increasingly focused on tamping down the challenge to its business from the social network, introducing Google Plus, a rival social service. Google’s big concern is that the bounty of data Facebook has about its users, including their tastes and friend connections, will turn it into a serious rival for online advertising dollars.

There is also wide speculation that Facebook will ultimately start its own Internet search engine to rival Google’s.

“Microsoft is simply less concerned about the threat of social [media] to its business than Google is,’’ said Michael Gartenberg, an analyst at Gartner, a research firm, explaining why Microsoft is not concerned about competition with Facebook.

“This may be a case of the enemy of my enemy is my friend,’’ he added.


Jim Prosser, a Google spokesman, declined to comment.

Microsoft has spent the past several years forging deeper connections with Facebook at every turn. Long stymied in its efforts to create an Internet search engine that effectively competed against Google’s, Microsoft two years ago struck a deal with Facebook to use data from the social network in Microsoft’s Bing search engine to create more relevant search results. But the arrangement has not helped dislodge Google from its position of supremacy in Internet search.

Years before that, Microsoft tried to acquire Facebook, but the social network’s chief executive, Mark Zuckerberg, rebuffed the offer. Those conversations subsequently led to Microsoft’s taking a small stake in Facebook, from which it stands to profit handsomely after the company goes public.

Microsoft has continued to lose money on Bing, including more than $2.6 billion in operating losses for its online division during its last fiscal year.

More than a year ago, Microsoft executives sent out feelers to Facebook to see if the company would be interested in acquiring Bing, although the overture was not officially sanctioned by Steven A. Ballmer, chief executive of Microsoft, one of these people said.

Zuckerberg declined, saying Facebook had too much else to concentrate on.

Dawn Beauparlant, a spokeswoman for Microsoft, declined to comment, as did Ashley Zandy, a spokeswoman for Facebook.

With its initial public offering drawing closer, Facebook disclosed Monday that its profit in the first quarter fell 12 percent, to $205 million, as its expenses continued to climb .


Still, its revenue exceeded $1 billion for the second consecutive quarter, something the company is likely to emphasize when it begins its presentations to potential investors in the coming weeks .

The latest financial figures, disclosed in an amended prospectus filed with the Securities and Exchange Commission, may raise questions about whether Facebook will be able to command a high stock value when it goes public, a number built largely on the promise of continued growth.

Analysts and company executives have estimated its potential value at more than $100 billion. Facebook has not disclosed the date of its public offering, but it is widely expected to become publicly traded in mid-May.

For the most part, Facebook has succeeded in continuing to rapidly increase its social network’s user base. The number of its daily active users, an important measure of engagement, jumped 41 percent in the first quarter, to 526 million, the company said in its filing. It said it has 901 million monthly active users, 30 percent more than a year ago .

The number of people using Facebook from mobile devices also rose, to 488 million. Such users are considered extremely valuable because more data can be gleaned about them .

That growth helped contribute to $1.06 billion in revenue in the first quarter, 45 percent higher than same time last year.