I hated facebook. From afar of course because I wasn't particularly interested in using it. Then, inevitably, someone wanted me to get on facebook, so I did. I hated the interface and the aesthetics, and really wasn't interested in making a pointless 'this is who I am' page.
But then a few interesting things started happening, my friends started using these little facebook applications (oh how much I hate the installing software analogy they've gone with is a whole other post) and I started using them as well. Like in the olden days (ie last year) when someone found a fun flash game and sent you the link and you sent your scores back and forth.
Like all these social networking sites its asynchronous communication with a low social overhead (your friends just happen to see what you're doing) and with lots of stuff to do. I think its going to become the internet for a large proportion of the population.
It might get beaten eventually, but in the short term the biggest potential challenger is google. If google leveraged the gmail user base to make orkut bigger and integrated it with igoogle widgets, it'd be something approaching facebook. I think they are somewhat reluctant to do that to their user base though, although it could be done unobtrusively.
"Acquirers are less prone to irrational exuberance than IPO investors. The closest you'll get to Bubble valuations is Rupert Murdoch paying $580 million for Myspace. That's only off by a factor of 10 or so."
I was probably wrong in saying it was only worth a tenth of that, but I still think $580 million was high. Remember, what he bought wasn't the present-day Myspace. Most of Myspace's user base (and thus value) was added since the acquisition.
"Most of Myspace's user base (and thus value) was added since the acquisition."
How many of those new users were because of News Corp's acquisition? If majority of those users would be added anyway (if it was just a matter of time), and an astute investor could predict that, its valuation of $580m or even more would be justified.
Today most financial publications believe Murdoch got Myspace for a bargain.
bargain? he got it for a steal. Even sumner redstone (notoriously suspicious of the web "hmm what is that nuisiance stealing from my billions??") said it was worth 1.5B -- conversations with Michael Eisner.
Yeah, but we're not talking about people here. We're talking about one guy, who possibly did a stupid thing by buying it. If someone mistook glass shards for diamonds and bought them for $10k, it doesn't mean the glass shards are worth $10k.
One guy who wouldn't have paid so much if there weren't other people offering similar amounts. My point is that you can't pick an arbitrary amount ($58 Million) for the valuation - but that this amount is always dependent on other people.
The problem with your example is that we all have limited knowledge about any given business transaction. Assuming ten people were standing around bidding on little rocks thinking they are diamonds, for that moment (to those people) they are worth $10k. When they have more knowledge (i.e. that this is glass and not diamonds) then the worth of those rocks drops. So the worth varies based on the knowledge in the market and valuations of others.
Now in any given market if one has more knowledge about a good or service one might be able to say that a good or service is over valued. For instance, I have always believed Myspace to be over valued. However, this realization does not give one the ability to pick a number out of the air and state that it is a correct valuation.
"Facebook, which is used by over 40 million people to set up their own personal Web pages...has emerged as the poster child for the latest Internet wave."
Yes, the latest e-Wave to hit the the Beach of Interweb e-Shores.
IN OTHER NEWS: Bill Gates and Steve Ballmer were seen taking hits from a large bong outside the headquarters of the Redmond giant on Monday.
Ballmer was quoted as saying,"This wacky tobaccky is sooo good. Let's buy Dunkin Donuts for $20 billion! Mmmmm, donuts..." He then proceeded to do a Monkeyboy Dance, to the giggling delight of a baked Bill Gates. http://www.youtube.com/watch?v=Nc4MzqBFxZE
Google is nearly impossible to replicate where as social networks is and will always be a trend. Also people tend to use more than one of these social networks.
PG pondered once in one of his essays, if I remember correctly, that naturally myspace or any other current social network will not be the only one in the years to come.
That Google maintains its audience despite zero lock in is a testament to just how strong their search product is. I don't see Facebook opening up all of the details of their network.
Keep in mind also that a strategic investor is always willing to pay more for the same stake than a purely financial investor.
This is because the strategic investor -in addition to reaping financial rewards- will also gain something else. In this case, it could be an exclusive agreement for Microsoft's ads, or use of MSN as the default search engine, integration of other MSN products, etc.
Even if Microsoft's deal puts a nominal valuation of $10B on Faceboook, Facebook's IPO (if it happened) could put the valuation lower.
Btw, this is an important point to note when evaluating exit strategies. Depending on the circumstances, getting acquired could be a much better exit even if the public markets are interested in your IPO. Youtube was probably not worth $1.6B based on just its financials, but it was worth that much to Google (or at least Dr. Schmidt thought so).
Can Microsoft, with a $237 billion capitalization, or Google, $177 billion, could afford acquiring Facebook at $10 billion (nevermind the $15 or $20 billion that they seem to expect)?
(In any event, they seem to only want a small stake.)
Last I heard their revenues were less than $50 million. This puts their P/E ratio in the triple figures. The whole business seems too risky. I don't think I would sleep well if I had a lot of my money in Facebook.
P/E ratios in cases like this can be misleading - it is hard to predict earnings for what is the poster child for the social app phenomena.
Put another way, facebook isn't really focusing on monetizing its users yet - it is (rightly) focusing on becoming the platform of choice for the social web.
10B might be a steal in the long run if you believe a site like this is the future of content distribution or advertising.
While I agree about the P/E ratios, I think Facebook has definitely started monetizing it's users, short of charging them a monthly fee anyway. Logging in now gives me a home page with banner ads to the left, and at least 3-4 ads in my 'News Feed'. Not to mention the marketplace aspect of it. If Facebook becomes the de facto identity manager on the web, I could see a sky high valuation like this, but I think they will piss off their users if they keep going like this.
I read somewhere else that they suspect that Microsoft just wants the 5% so it has more control over serving ads, much like Google owns 5% of AOL so it can serve a ton of ads to AOL users/visitors.
The ads on Facebook get abysmal clickthrough rates (often less than 0.1%). $10 billion is a P/E of more than 300, and even for a very hot company, that is pretty far into outer space. If these are in fact the numbers being thrown around behind the scenes, you're probably right that it's because Microsoft wants a place to improve its ad serving (and to deny Google that same place).
Something tells me this approach towards the concept of platform, will be the beggining of the new bubble every single irrelevant reporter has been praising for the past 2 years.
And there are a tons of reasons that make it clear to a technology person, that bussiness persons will ignore and some will get the money and others lose big.
But then a few interesting things started happening, my friends started using these little facebook applications (oh how much I hate the installing software analogy they've gone with is a whole other post) and I started using them as well. Like in the olden days (ie last year) when someone found a fun flash game and sent you the link and you sent your scores back and forth.
Like all these social networking sites its asynchronous communication with a low social overhead (your friends just happen to see what you're doing) and with lots of stuff to do. I think its going to become the internet for a large proportion of the population.
It might get beaten eventually, but in the short term the biggest potential challenger is google. If google leveraged the gmail user base to make orkut bigger and integrated it with igoogle widgets, it'd be something approaching facebook. I think they are somewhat reluctant to do that to their user base though, although it could be done unobtrusively.