How Much is a Facebook User Worth?
Posted by Nick O'Neill on January 17th, 2008 9:35 AM
Adam Ostrow wrote an interesting piece on Mashable about the value of a Facebook user. Based on the publicly traded company SNAP Interactive (previously eTwine holdings) that owns the Are You Interested and Meet New People applications, Adam Ostrow deduced that the value of each Facebook user is $1.40. You can read his post to see how he got to this conclusion. This is a far cry from the hundreds of dollars that Lee Lorenzen of Altura Ventures has valued Facebook at.
I would argue that $1.40 a user is still a low estimate. Facebook can earn significantly more from each user and a leading application can expect significant growth over the next 12 months. Additionally, Are You Interested is far from finished in optimizing their advertising system. Additionally, this calculation is the value of a dating application user. Other applications can build brand relationships and create significantly more value per user.
Valuing Facebook users at this point is a completely inaccurate science at this point but revenue information from a public company helps us come up with an estimate. If you are heavily invested in the social networking space you may want to consider buying some SNAP Interactive stock. Then again, this company is traded over the counter and lack of daily volume may just prevent you from exiting your position anytime soon.
So how much do you value a Facebook user? Do you have any creative ways for more effectively monetizing your application users?
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I have valued Facebook at $300 per user based on the $15 billion valuation deduced from Microsoft and two other cash only investors in Facebook when they had 50 million users. This number implies that the Lifetime Value of these users from yet-to-be implementated monetization will be $300. Assuming a lifetime of 5 years for a facebook users inside their system, this means earnings of about $60 per year to Facebook per user or $5 per month per User or $0.16 per day in earnings. Facebook could achieved this today with about 1 web search per user per day with 50% of these leading to a click on a $0.32 Sponsored Link.
The value of a Facebook user to an application is a different matter. My own estimate on a per install basis is around $0.40 to $0.60 depending on whether or not the app is growing and the % of daily active users from the app's install base. The ultimate metric is really the Revenue Per Year for the app from its install base of users. Once you know this number you can apply a multiplier based on your expectation of how many years that revenue or higher can be achieved.
Most private software companies are sold for between 1x and 3x annual revenues. Most small cap public software companies trade at 5x to 10x annual revenues. So, the analysis provided of $1.40 per active user implies a 5x sales revenue figure for SNAP Interactive which seems reasonable. The equivalent number for a single app private facebook app user would be $0.28 on the low end (1x sales) and $0.84 on the high end (3x sales).
This all dovetails nicely with the $0.50 per install that RockYou and Slide charge to purchase facebook installs.
Thanks,
Lee Lorenzen
CEO, Altura Ventures -- the first Facebook-only VC
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