Valuation of Facebook at $15 billion is really bloated. But, the funny thing was not just the fact that Microsoft bought 1.6 % of the company for $240 million dollars. My knee jerk reaction was “holy cow, Mr. Softy is really stupid”.

But, it all started making sense after some more analysis. And, I think it does make sense for Microsoft to invest in Facebook for following reasons.

1. Pocket Change: $240 million is equivalent to change for Microsoft. With over $50 billion in revenues and $21 billions in cash; its balance sheet would make any company envy its success. So, even if this investment goes nowhere, it hardly dents the bottom line.

2. Buying Market Share: It is all about market share. With this deal; Microsoft just bought itself reach to 48 mm users across the globe. It already had access to the US advertising business with guaranteed revenue deal. Although, this deal is unlikely to replace it; it will definitely give Microsoft a much needed momentum in online ad space.

3. Keeping Competitors at Bay: It also makes sense from competitive standpoint that ‘Softy’ won the deal. Google already have such a deal with Myspace and AOL. These deals not only creates brand value for the company’s ad business but also helps them fine tune their newly designed tools.

Ultimately, it doesn’t sound as much of a bad deal from Microsoft’s point of view. But, we’ll have to see what happens to it in future. And, it all depends on how well Facebook is able to monetize itself.