Whale Watching: The Inside Story of the +$100M Microsoft and Facebook Alliance
Dan Rose sealed a $100M+ Microsoft partnership in 6 weeks. Franz-Josef Schrepf breaks down how Rose secured the alliance.
Six weeks after Dan Rose joined Facebook as VP of Partnerships, he closed a $100M+ deal with Microsoft. He shared this amazing story in a Twitter Thread, which I’ve read at least ten times.
Today, I want to break down how Dan was able to close the biggest deal of his career and the lessons we can learn to broker industry-defining alliances for our own companies.
Lesson #1: Understand your partner’s context
When Dan Rose joined Facebook in 2006, it was the underdog. MySpace had 10x the users and signed an advertising deal with Google worth $1 Billion. However, through his connections, Dan knew that MySpace had left Microsoft at the altar when it decided to sign with Google.
He saw an opening to become Microsoft’s “rebound date”. Steve Ballmer believed that ads could become an existential threat to their software and knew he needed scale to build an ad platform.
Dan was able to spot this opportunity because of his extensive network at Microsoft and other tech companies. A large part of a partnerships leader’s role is to gather intel and understand the industry context in which her own company and her partners operate in.
Lesson #2: Create urgency
Facebook was the #2 in this market and there weren’t many deals left that could offer this scale in web-standard banner ads. Dan told the Microsoft team they would need to move fast. Google also had an eye out for this deal.
Under normal circumstances, industry giants like Microsoft are slow to move. However, Dan knew that Steve Ballmer was upset about his recent loss to Google and didn’t want another deal to slip. He aligned himself with a key leadership initiative (Microsoft’s ad platform ambitions) and greased the wheels with FOMO to get the giant to move.
Lesson #3: Identify shared enemies
What Dan failed to mention was that he was worried about Google’s own ambitions in the social media space. Remember Google+? The Facebook team knew that Google would eventually try to crush them, so they sought out an enemy-of-my-enemy alliance.
This mutual fear of Google was the foundation for the Microsoft and Facebook partnership for years to come. Microsoft even became the lead investor for Facebook’s Series C round at a $15B valuation.
Lesson #4: Identify value drivers for each party
Here’s my favorite lesson from Dan’s story:
"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 the motivations of each side, you might find one party cares about the meat while the other cares about the rind."
If you had sliced the orange in half, there would have been waste on both sides. Alliances have a high failure rate because we often don’t understand what drives value for the partner. We assume a partner cares about the same things we do. We get defensive when we should be curious.
The Microsoft ad deal contributed significantly to Facebook’s revenues in the early days. It outsourced its ads business at a time when user growth and winning market share were more important than owning the entire value chain. Banner ads weren’t strategic for Facebook at this point.
At the same time, Microsoft was happy with the deal. It gave them scale. Google also lost tons of money as the MySpace deal dissolved—an added bonus they couldn’t have planned for.
Lesson #5: Leave value on the table
After he signed a deal worth hundreds of millions of dollars, Mark Zuckerberg asked Dan a simple question: “How’s it working for Microsoft so far?”
Long-term relationships aren’t built by squeezing pennies. Partnership pros need to dig deep, identify leverage, and minimize waste. But they also need to leave enough room for both companies to benefit from the relationship. BD deals are not about dividing a pie into equal parts.
The goal is to grow the pie together.
Conclusion: Timing + Network + Value = Alliance
The Microsoft and Facebook alliance was exceptional in many ways. These types of deals usually take years to negotiate and only come around once every blue moon.
Dan Rose joined Facebook at the right time, had the right industry connections, and offered access to a corned resource Microsoft urgently needed.
You can’t expect to close a similar deal within six weeks of starting your new job, but if you keep an eye out for these three factors, you might just hit the jackpot!
Franz Schrepf is the Head of Strategic Partnerships at StreamYard. He’s also the host of The Partner Ship, a bi-weekly LinkedIn Live Show where he interviews the world’s leading partnerships experts.
