Oct. 24 (Bloomberg) -- Microsoft Corp. will buy a 1.6 percent stake in social-networking Web site Facebook Inc. and agreed to sell ads for the Internet company overseas, beating out a bid from Google Inc.

The company will pay $240 million, said Adam Sohn, a director in Microsoft's online services group. That values Palo Alto, California-based Facebook at $15 billion as it seeks another round of private financing to fund its expansion.

Microsoft, the biggest software maker, is seeking to tap the surge of visitors and advertisers on social-networking sites. Microsoft already has an agreement to sell Facebook banner ads in the U.S. through 2011. By winning the exclusive international deal with Facebook, the owner of the second-most-popular social site, Microsoft also benefits from growing demand abroad.

``Microsoft is certainly paying a steep price,'' said Morningstar analyst Toan Tran in Chicago, who rates Microsoft a ``hold'' and doesn't own the shares. ``There's just no way you can justify it unless you think Facebook can grow into something much more than it is currently.''

The investment is part of the Facebook's next round of financing, the companies said today in a statement, which didn't name any other participants.

Spending by advertisers on social-networking sites such as Facebook and bigger rival MySpace may almost triple to $3.63 billion globally by 2011, according to EMarketer Inc., a market researcher in New York. Almost 60 percent of Facebook users are outside the U.S.

Talks

Google, owner of the top Internet search engine, outdoes Microsoft 7-to-1 in Internet ad revenue. That made it more important for Microsoft to keep its relationship with Facebook, which had 73.5 million visitors in September, according to researcher ComScore Inc. in Reston, Virginia.

Microsoft, based in Redmond, Washington, began talking to Facebook about the stake in the summer, people familiar with the discussions said earlier today. Facebook discussed several options, including a complete sale of the company, and decided to sell a small equity stake that would give it cash before an initial public offering in a few years, one of the people said.

``This deal represents a major advertising syndication win for Microsoft,'' said Kevin Johnson, the president who oversees the company's online business. ``It signals an enormous vote of confidence from our largest ad partner.''

Microsoft rose 35 cents to $31.25 at 4 p.m. New York time in Nasdaq Stock Market trading. The stock has climbed 4.7 percent this year. Google shares, which have advanced 47 percent this year, rose 5 cents to $675.82.

Facebook's Rise

Two factors mitigate the exclusivity of the agreement. Outside software developers who build applications that run on Facebook still retain the right to work with advertising software from Google or other Microsoft rivals. The agreement also doesn't preclude Facebook, which already has its own ad salespeople, from building its own advertising software.

``There are still huge questions about that,'' said David Card, an analyst at JupiterResearch in New York.

Google had no immediate comment on the decision.

Facebook, started by 23-year-old CEO Mark Zuckerberg in 2004, has grown from a college dorm-room project to a site with almost 50 million active subscribers. On average 200,000 new users sign up daily, the company said. Microsoft's Johnson said Facebook could reach 200 million to 300 million users.

Teenagers and young adults have flocked to Facebook since the site expanded beyond university students a year ago, attracting advertisers that want to target users of a particular age or gender.

Online Time

Social-networking sites are ``where young people are spending the bulk of their online time,'' said Debra Williamson, an analyst with EMarketer. ``Marketers are trying to figure out how to reach that audience.''

Microsoft, Google and Yahoo! Inc. are rushing to make sure they aren't left out of the market. In August last year, Google struck a deal to provide search and advertising features to MySpace. Yahoo, owner of the most-visited U.S. Internet site, forged an agreement last month to sell video and banner ads for Bebo Inc., owner of the most-popular social Web site in the U.K.

Microsoft boosted ad revenue by 21 percent to $1.84 billion in the fiscal year ended June 30, while Google's ad sales jumped 64 percent to $13.3 billion in the same period.

Future Plans

Google handled five times as many Web search queries as Microsoft in August, according to ComScore. That gave Google more opportunities to sell ads.

Facebook's users increased more than 6 percent in September from the previous month, ComScore said. Visitors to top social- networking site MySpace, owned by Rupert Murdoch's News Corp., rose 1 percent to 107.3 million.

Facebook plans to more than double its staff to 700 in the next year, Zuckerberg said last week. The company needs money to hire engineers and salespeople, said Karsten Weide, an analyst at IDC in Framingham, Massachusetts.

The company also uses ``a lot of servers, a lot of memory, a lot of bandwidth -- and all that is very expensive,'' he said.

To contact the reporters on this story: Dina Bass in Seattle at dbass2@bloomberg.net; Amy Thomson in New York at athomson6@bloomberg.net

Last Updated: October 24, 2007 18:32 EDT