July 18, 2007
Facebook: “Why we’re worth $10bn”
Guessing the value of Facebook has become Silicon Valley’s favourite pastime. According to one of its biggest investors, however, it really isn’t for sale - at least, not at anything like the price anyone would be willing to pay for it.
Peter Thiel, who says he’s the second-biggest shareholder in the hottest private company du jour, is pretty direct. "We believe it’s worth $8-10bn," he said at a meeting last week. (The "we" includes his fellow directors at the social networking company, founder Mark Zuckerberg and venture capitalist Jim Breyer.) He adds:
We could probably get $2-3bn at the moment, but there’s noone who thinks it’s worth what we do.
How do Thiel and co justify their price tag? With 30m users, growing at 3 per cent a week, Facebook could have 100m users by the end of this year, he says. As a former boss of PayPal, he also says he’s seen before just how significant companies with built-in network effects can become:
The big lesson I learnt from the PayPal experience was, people tend to underestimate how far it can go.
He makes two other claims for Facebook’s lasting competitive advantage. One is its new platform strategy. Quoting Bill Joy ("Most of the smart people in the world don’t work for you") he says that opening up to other developers gives Facebook a degree of future-proofing. The company may not itself anticipate the killer app of online behaviour five or ten years from now, but if the smartest developers are drawn to its platform there’s a fair chance it will play host to the next big thing.
The other is that Facebook is collecting valuable information about all those new users. At some stage, that will prove very valuable - even if, for now, it has its eyes fixed on growth rather than monetisation.
Can the question of business model be dismissed so easily? A partner in one of the Valley’s most prominent VC firms (while confessing to deep envy at not having been able to invest in Facebook himself) points out that simply plastering display ads over Facebook pages will not do. That is simply a recipe for degrading the user experience. Where is the killer app for commercialising the site - the AdWords of the social networking world, something which fits naturally into the experience in the same way that search marketing complemented Google? Short of such a breakthrough, it seems purely speculative to try to put a value on Facebook.
If Thiel’s price tag represents his (and Zuckerberg’s) true opinion, and isn’t some elaborate attempt to stoke up a bidding war, then it seems Facebook will stay an independent company for a good while yet. That’s what Fred Wilson believes (or rather, hopes) - he’s counting on an IPO next year.
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While the platform strategy has to be applauded (almost like a web 2.0 version of Microsoft), the applications are pretty rudimentary - amusing rather than engaging.
It is too early to say how powerful their network is. The number of accounts may have increased exponentially, but there is limited evidence of longevity. Web 2.0 is characterised by short attention spans, and there is no evidence to say that Facebook will be any different.
Posted by: John (London) | July 18th, 2007 at 10:24 am | Report this commentFacebook is worth much, much less that its owners say it is.
http://www.247wallst.com/2007/07/why-facebook-is.html
Posted by: douglas mcintyre | July 18th, 2007 at 11:34 pm | Report this commentFair points all, but what about the value of the data they own? They have collected and cleverly organized an entire generation’s thoughts, contacts, favorite media, interests, and aspirations (and at very low cost) in a way that even Google may not be able to match.
Like Google, Facebook is in the data collection business, the question remains whether, as Richard writes, a tool can be developed to profitably leverage this data prior to the emergence of the next big thing that commands the blogosphere’s undivided attention.
Posted by: David (New York) | July 19th, 2007 at 6:23 pm | Report this commentSocial networking sites fall in and out of fashion. Before long, they seem to get polluted with intrusive factors that push the early adopters to move towards the next new thing. It’s also mainly driven by university/college students and recent graduates - i.e. ´ppl whom for the moment have much disposable time (but much less disposable income). Part of me doubts that it will provide sticky once those ppl have to start putting hours in at the job, raising a family, etc… The key attraction to ppl using it, is that it makes maitaining your personal network easier (and finding lost friends from before the days of e-mail, etc…) - I don’t think that the technology is particularly hard to replicate, especially if some form of platform integrating tool/application was out there. If I was them I would sell before the hype goes down… what can’t you do with $2-3bn that you can with $8-10bn after all!!
Posted by: Seb | July 19th, 2007 at 8:39 pm | Report this commentI agree with Seb that the technology can be easily replicated. Facebook are not the first nor the last. Myspace has actually a more commandeering position.
Interesting Points:
a. Can others emulate the viral marketing sucess of Facebook?
b. Can facebook maintain its early advantage when Universities and Schools get in on the action. (expect this as soon as they realise the potential for revenue and alumni funding streams)?
c. What would make the ABCs of the professional classes settle on one or maintain multiple concurrent networking accounts, as seems to be the case with most young profesional today?
Almost everybody we know has more than one e-mail to deal with different type of e-mail traffic. Almost everybody I know to have a social networking presence maintains more than one accounts on different sites.
I find the possibility of a dominant SN site very unlikely. The reason being that no site can be all things to all people. It is possible for one site to integrate Flickr photos, Youtube video, Facebook school/regional nets, Linkedin ‘business networking’, Myspace trendiness or any of the few 100 dating sites personals. They cannot maintain the ‘client base’ for all of these networking environments at the same time however.
The problem with such a valuation therefore is a poor understanding of social networks. The edge for a corporate actor such as Facebook may be only in proof of commercialisation.
Posted by: Dimitris CC | July 23rd, 2007 at 6:45 pm | Report this comment