Lee Lorenzen Strikes Back
Posted by Nick O'Neill on August 30th, 2007 11:28 AMTwo days ago I deconstructed Lee Lorenzen’s argument that Facebook is worth $100 billion without much thought. Yesteray, Lee posted his response on my blog. I don’t want to get into a mud slinging fight but I thought I would take the opportunity to post a rebuttal. Feel free to comment Lee!
Lee went through and expressed how Facebook is going to reach 200+ million users. This is one area where I totally agree with Lee. Not only do I think they will surpass 200 million users but I think they will hit 500 million users. That is not a typo. Not only will they surpass 500 million but I think they could go even higher. I won’t speculate about that though.
Next, Lee went on to justify his value of $500 per user on Facebook. Here are the five sources Lee came up with:
- targetted brand advertising — their Yahoo play
- keyword driven search advertising — their Google play
- P2P e-commerce transactions — their eBay play
- B2C e-commerce transactions — their Amazon play
- Industry Alliance transactions — their Microsoft vs. Google play
Apparently Facebook is going to take Yahoo, Google, eBay, Amazon and Microsoft head on, with one hand tied behind their back. While I am one of the primary Facebook evangelists, it is hard to imagine Facebook generating $500 per user. Conversely, I know that Google has successfully done it. Lee states that, “Facebook’s multiple sources of revenue … are mostly tied to people staying within Facebook’s environment.” All the ads that I click on Facebook seem to direct me to other sites except for those ads being placed by the more than 7 other ad networks that have been launched on Facebook’s platform. Conversely, I can see this shifting in the coming months.
Honestly, I’m playing devil’s advocate here and I see a lot of what Lee is talking about. One thing I don’t agree with Lee on though is how Facebook has dramatically improved email. They need to improve their messaging system dramatically. I can’t browse through my unread messages currently. Also, the notion that they have “effectively killed SPAM” is a false one. I can guarantee that the volume of SPAM will increase on Facebook over the coming months and this will be one of Facebook’s primary challenges.
You know what? After trying to disprove Lee’s arguments, I have suddenly come to believe that Facebook may indeed be worth $100 billion soon enough. I said it! Facebook will be worth $100 billion. Facebook definitely has some serious issues that they are going to have to resolve though including the overload of application invites I’m receiving as well as their highly inefficient messaging system. Once they make those changes (and launch their killer feature) Facebook may just become the next $100 billion web company. I guess this wasn’t really a strong rebuttal was it?
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Wow, I'm not sure how to respond. I guess I'm glad you agree that Facebook is worth $100 Billion and I'll now count you as a convert in my mission to convince the world that Facebook is indeed the NEXT BIG THING.
In fact, I wrote about how the Facebook story (see http://blog.adonomics.com) is really "Triumph of the Nerds -- Part Deux" (with all proper credit to Robert X. Cringley for his great book and video about the advent of the first mainstream Graphical Operating System).
Facebook's arrival will allow for another HUGE CREATION OF WEALTH and it will be interesting to see how Bill Gates, Steve Ballmer, Steve Jobs, Eric Schmidt, Larry Page and Sergei Brin react to this coming sea change.
The battle of the titans is about to begin and it will only help to accelerate the success of Facebook's user recruiting efforts from my estimate of 200 million to your 500 million number to even numbers beyond these levels.
In that vain, you may have noticed the link about facebook adding "Friend Lists" (see http://www.insidefacebook.com/2007/08/29/specul...). This will allow facebook users to begin to segment family, work, school and social friends into different lists (along with different sections for photos, videos, embarrassing wall posts, etc.) and make it much safer for lots of business folks currently maintaining a profile on LinkedIn to jump ship and join the fun on Facebook.
IMHO, this move is going to kill LinkedIn and their best hope would be to try to find a way to get acquired by Facebook for 1/2% to 1% of Facebook. Which given my valuation will turn out to be $500 million to $1 billion of post-ipo stock value. Not a bad deal (and one I hope my former company SHOP.COM is able to make).
Imagine what would happen if a BIG APPLICATION SUITE PLAYER (e.g., Microsoft) were to fully embrace the Facebook platform and shift all of their tech. support for apps into Facebook Groups like the "Official Microsoft Office Users Group" (see http://www.facebook.com/group.php?gid=2458432518 that I created and Steve Ballmer is already a member of). In addition, it would be trivial for Microsoft to change the install process for their entire Office application suite to encourage folks to register with their Facebook User ID (and perhaps earn some greater level of support or some other benefit like peer support through an app like CrossLoop.com).
This could mean another 50 to 100 million business users on Facebook in under 12 month's time.
How much would this be worth to Facebook?
This is just one way in which Microsoft could quietly lock up an option to purchase some decent percentage of Facebook in the future without spending a dime today. In face, it would be a HUGE MISTAKE for Microsoft to buy facebook outright. It is only important that Microsoft prevent anyone else from doing so. The right kind of deal would allow Facebook to become HUGE on their own but to do so while having an alliance with Microsoft in the advertising domain.
So, the point of my post is not that Facebook will compete with everyone I listed but that they will leverage their gatekeeper / kingmaker role in the facebook eco-system to ensure they own a piece of the winners or extract a long term tax from partners who do most of the heavy lifting in areas like brand and keyword advertising.
Thanks,
Lee Lorenzen
CEO, Altura Ventures
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