Microsoft bought a 1.6% stake in Facebook today for $240,000,000. Reported at NYT here. This give a market value to Facebook of right about 15,000,000,000.
I do think Microsoft is smart (and Facebook stupid) to make the cash outlay much smaller than most had thought, giving them an alliance and a powerful foothold without spending the “billions” that apparently would have been required to buy a big stake in the internet’s latest wonder site.
With *revenues* of about 150 million Facebook is now valued at …. wait for this ….. one hundred times revenues. This is simply a spectacular and speculative valuation, even by internet standards where even a Google is only valued at about fifty times earnings. Note that if Google was valued at 100x their expected revenues over the next year their capitalization would be something in the neighborhood of 1.5 trillion dollars.
Many will suggest that the value in keeping Facebook away from Google was so great that MS has won big, but I’d predict not much will come of this alliance. Like many online regulars I’m already tiring of Facebook and looking for a completely open, portable social application. To justify today’s value Facebook will need to grow pretty much like nobody’s ever grown before. Sure, it’s possible, but I think this will go down with Google’s YouTube aquisition as good money after bad, because monetizing Facebook traffic will be far more problematic than Microsoft seems to think.
All that said, congratulations to the Facebook team who must be popping a few corks about now…. no champagne is good enough for this news.
I’m not listed in Facebook or MySpace or any of that stuff so I don’t really know how they operate but when one speaks of ‘Facebook revenues’ just what are such revenues derived from: membership fees, advertising revenues?
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FG the revenues are advertising, and I think half are from a running ad contract with Microsoft which is why some have suggested Facebook is wildly overvalued – without that ad contract they’d be making even less from the basic Facebook advertising, which appears to convert to business in an inferior way to seach ads. My feeling is that search and social network advertising is overrated enough that these deals will go down as mistakes. That said, I though Myspace was overvalued when Fox spent a paltry 650,000,000 for the whole thing when it was much bigger than Facebook is now.
When you say advertising revenue, is this derived from ads that are unique to its being a social networking site so that some member of the site who is a photographer will see an ad for film or is it simply that “n” number of people who sign onto the heavily trafficked site see ads some of which happen to be for film even if the site visitors are not photographers and do not post about photography?
Are the ads ‘localized’ by geography? Would a resident of Miami Beach see an ad for: Alaskan Igloos? Florida Land? Miami Nightclubs?
If someone registers and posts a great deal about “hitting the sack” does he see ads for burlap sacks?
FG I don’t know the specifics at Facebook, but the short answer I think is that they are planning to do a lot more targeting than they do now. They probably do some geographic and subject targeting now – I’ll try to look for that next time I’m there though that is not often. Note that for things like an iPhone or Sprint Cellular or SONY or other globally relevant products you really don’t need to target – SPRINT will want to reach every single person on Facebook to promote cell phones. Conversion on this type of campaign is obviously much lower than if you advertised at a cell phone blog, but Facebook offers spectacular “reach”.
One of the reasons Social Networks are so big is that theoretically they’ll be able to do very specific targeting of ads to individuals since they have your information already. I don’t think there is much of this now, although Google gmail is working with this concept by pumping out “relevant” ads into panels that surround the email reader. I think the subject of the emails it used to target those ads, which lead to Steve Ballmer saying that MSN does not read people’s email like google.
What is done now is targeting by niches, geography, and many other factors seem as relevant.