7 Ways Facebook, Microsoft Can Partner Beyond Skype7 Ways Facebook, Microsoft Can Partner Beyond Skype

Facebook said Wednesday it will add Skype to its menu of services. The VoIP specialist, of course, falls under Microsoft’s domain once Redmond's $8.5 billion deal to purchase the company closes. But Internet calling is just one area where collaboration between Microsoft and Facebook makes sense--especially if both want to continue their dominance in software and social networking. Apple is mounting a big challenge to Microsoft in the former, and Google is hot on Facebook's heels in the latter. Here's a look at some other opportunities the two tech behemoths could jointly exploit.

1. Enterprise social networking: Businesses for the past couple of years have been toying with Facebook-like networks to ease collaboration and communication between employees, but it hasn’t caught on. IBM, Jive, Microsoft itself, and others offer business-oriented social platforms, but none has the brilliantly intuitive interface that’s drawn 750 million people from around the world to Facebook. Microsoft could adapt a version of that UI for the enterprise, bundle it with Office, and marry it to its administrative and security tools. Firewalls could be established between workers' business and personal Facebook presences. It's a scenario that could see social networking finally take off in the enterprise.

2. Search: What would the above scenario cost Microsoft? Perhaps nothing, or little, if, in exchange for a Facebook UI license, it shared its Bing search engine with Facebook. Facebook's lack of a proper Internet search tool is an Achilles' heel that could give Google's new Google+ social network an opening. Facebook needs search. For Microsoft, seeding Facebook pages with Bing could help it cut into Google's search dominance faster than it ever could on its own. A revenue sharing deal for paid search listings along the lines of Microsoft's existing agreement with Yahoo could work for both parties.

3. Web Apps: Need to quickly share a document with a friend or colleague? The ability to launch, edit, and collaborate on files directly from within Facebook would add a whole new level of functionality to the site for everyone from softball captains to sales managers. There's already word that Google Apps is coming to Google+, so Facebook needs to respond. Microsoft's Office Web Apps suite, which comprises lite, cloud-based versions of Word, PowerPoint, Excel, and OneNote, would be a perfect fit.

4. Streaming content: Microsoft has a trove of movies, music, TV shows, and other licensed content available for streaming through its Xbox Live service and other paid outlets. Facebook has none. See a fit? Microsoft's problem is that, while its content is just as good as Apple's (in many cases it's exactly the same), it lacks Apple's distribution clout, which comes mostly by virtue of the iPod, iPhone, and iPad. But for more and more people, the first destination when you fire up your iPhone is Facebook. Streaming content from Microsoft would give Facebook users one less reason to jump to sites like Hulu and Netflix.

5. Games: Facebookers love games, Microsoft has lots of them. Since the debut of Windows Phone last year, Microsoft Game Studios has produced a slew of mobile-optimized titles in its own XNA format. Most Facebook games run in Flash, but it’s hard to see why Facebook could not provide support for XNA. XNA on Facebook would allow developers to write once for the Xbox, Windows Phone, and the world’s biggest social network--a powerful trio that could be irresistible to developers currently wedded to Apple's App Store.

6. News: By virtue of its stake in MSNBC and licensing deals with other NBC properties, Microsoft compiles and curates a rich cache of real-time news and information. And Facebook’s right-hand sidebar has a lot of open real estate that's just begging for customized news feeds. Again, it's a lock that Google+ will integrate Google News, so Facebook needs an answer.

7. Merger? With all the potential synergies, should Microsoft attempt to acquire Facebook outright? Yes. The theme through all of the above is the fact that Microsoft has a wealth of first-rate back-end platforms and services, and a bunch of crappy, consumer unfriendly front ends. Just look at the mess that is WonderWall (MSN's celebrity news site.) And MSN? Doesn't even crack the Web's top ten, according to the traffic watchers at Alexa. But Facebook trails only Google as the world's most frequently visited site.

Microsoft tacitly acknowledged its weakness in portals when it made a pitch for Yahoo two years ago. The proposed deal fell victim to personality conflicts between Steve Ballmer and then-chief Yahoo Jerry Yang, as well as some notable shareholder resistance. Its failure should be seen now by Redmond as an opportunity. Facebook would be a far more valuable asset, one that could be a Google killer, if combined with the right assets. Microsoft has them.

A Microsoft-Facebook tie-up would also yield a nice symmetry. Ballmer likely has less than a decade to go atop Microsoft. And Mark Zuckerberg, widely hailed as this millennium's Bill Gates, could step into the role after a transition period. He is the sort of visionary Microsoft has sorely lacked since the real Bill Gates faded into the role of disinterested chairman.

How much is Facebook worth? In 2007, Microsoft bought a 1.6% stake in the company for $240 million. That valued the site at $15 billion in total. Since then, Facebook has cemented its status as what pundits called the world's "social operating system." It's easily worth $60 billion today. Microsoft is one of the few companies around that wouldn’t recoil at that price tag. It has $50 billion in cash and equivalents on hand right now. It could put a good chunk of that towards the transaction and finance the rest through the investment banks. The deal could work--Microsoft should take a shot.

IT is caught in a squeeze between requests for new applications, services, and device support and demands from upper management to keep budgets lean, staffing light, and operations tight. These are irreconcilable objectives as long as we spend the vast majority of our resources on legacy services. Read our report now. (Free registration required.)