Today is 15 billion dollar day at AllFacebook.com. Given that just about every piece of news related to Facebook today is about Microsoft’s investment, I thought I would touch on it one more time. Scott Karp is questioning if Facebook is actually losing value due to their open door policy. His basis for the argument is a quote from Paul Saffo who wrote an Economist article and said “The value of a social network is defined not only by who’s on it, but by who’s excluded.”
While I understand the argument, I completely disagree. To date, social networks have not been built with an effective filtering system to separate among your various affiliation groups. If your professional contacts see pictures of you getting wild in Cancun, that is going to be bad news for you. That has been the primary issue with Facebook but fortunately they have announced that will soon enable grouping features. So while this expresses my disagreement with the inverse of Metcalfe’s law, none of this answers the question: is Facebook overvalued?
Yes! I don’t thing that the present value of Facebook is $15 billion. While financiers may argue that it is worth that because that’s what Microsoft valued it at, I disagree based on a stratospheric earning multiple. The investment was a bet by Microsoft. Eventually Facebook may be worth much more than this but it also was a defensive maneuver to block out Google from access to the highly valued Facebook web search. As Greg Sterling has pointed out, this investment most likely secured Microsoft with access to Facebook’s future web search. While I personally may stick with Google for web search, many users on the web just want ease of use. One less click means a time savings for the user and more money for Facebook.
So while Microsoft’s investment in Facebook, may leave everyone questioning whether or not it was a good investment; the reality is that this was a bet by Microsoft that Facebook will soon be worth much more than $15 billion. I have to say that this was a really good bet. It’s time that Microsoft starts making some serious bets given that they are rapidly gaining the reputation of an old school company that doesn’t have a grasp on the future of technology. Do you think this was a good bet?
![[Inside Social Apps 2012]](http://www.allfacebook.com/wordpress/wp-content/themes/allfacebook2/images/ISA2012_336x100_F_RegisterNow.gif)
![[AllFacebook Stats: Facebook Analytics for Your Business]](http://www.allfacebook.com/wordpress/wp-content/themes/allfacebook2/images/stpro_allfacebookstats.gif)
![[How can Facebook change your business?]](http://www.allfacebook.com/wordpress/wp-content/themes/allfacebook2/images/FMB_A_MAY2011_336x100_F.gif)
I think it was a good bet simply because another loss to Google would have been a death blow to MSFT's online strategy. It's obviously hard to justify the multiple based on what we know now, but I'm willing to bet that MSFT knows more about Facebook's monetization strategy than we all do.
Comment by Ryan Miller — October 25, 2007 @ 9:09 am
As I've written, Microsoft Expects a 7x Return on Their Recent Facebook Investment:http://blog.adonomics.com/2007/10/24/microsoft-…..The value will come from three things:1. Growth to 200 million active users2. Powering 18 to 36 billion web searchs in 2008 and 2009 which will generate $2 and $4 billion in Cost Per Click Keyword-driven (i.e., Google-style Text Link) ads3. Offering a Facebook Mall with 1,000 top merchants each paying $1 million per year in base rent plus 5% of Gross Sales in Overage RentThis gets facebook to a $100 billion IPO at between 25 and 50 PE ratio (depending on how soon they go out).It doesn't take much execution or any new inventions to enable these huge new sources of revenue.Thanks,Lee
Comment by Lee Lorenzen — October 25, 2007 @ 12:44 pm
As I've written, Microsoft Expects a 7x Return on Their Recent Facebook Investment:
http://blog.adonomics.com/2007/10/24/microsoft-ex...
The value will come from three things:
1. Growth to 200 million active users
2. Powering 18 to 36 billion web searchs in 2008 and 2009 which will generate $2 and $4 billion in Cost Per Click Keyword-driven (i.e., Google-style Text Link) ads
3. Offering a Facebook Mall with 1,000 top merchants each paying $1 million per year in base rent plus 5% of Gross Sales in Overage Rent
This gets facebook to a $100 billion IPO at between 25 and 50 PE ratio (depending on how soon they go out).
It doesn't take much execution or any new inventions to enable these huge new sources of revenue.
Thanks,
Lee
Comment by Lee Lorenzen — October 25, 2007 @ 1:44 pm
I think it was a good bet simply because another loss to Google would have been a death blow to MSFT’s online strategy. It’s obviously hard to justify the multiple based on what we know now, but I’m willing to bet that MSFT knows more about Facebook’s monetization strategy than we all do.
Comment by Ryan Miller — October 25, 2007 @ 1:09 pm
[...] Check it out! While looking through the blogosphere we stumbled on an interesting post today.Here’s a quick excerpt related to Facebook today is about Microsoft s investment, I thought I would touch on it one more time… is $15 billion. While financiers may argue that it is worth that because that s what Microsoft valued it at, I disagree based on a stratospheric earning multiple. The investment was a bet by Microsoft… , this investment most likely secured Microsoft with access to Facebook s future web search. While I… click means a time savings for the user and more money for Facebook. So while Microsoft [...]
Pingback by Ghillie Suits » Is Facebook Overvalued? — October 25, 2007 @ 2:40 pm
$100bn IPO, are you serious? Basically all the value would come from contextual search advertising presumably provided by MSFT. Let's not forget that1) MSN search sucks2) MSN has FAR fewer advertisers than Google/Yahoo This means that users will probably be disatified which such a search if it launches AND that they will have a harder time monetizing each query than if they chose another partner.It's unclear to me that MSN could change either of these factors even by 2009.
Comment by erikn — October 25, 2007 @ 3:41 pm
$100bn IPO, are you serious?
Basically all the value would come from contextual search advertising presumably provided by MSFT. Let's not forget that
1) MSN search sucks
2) MSN has FAR fewer advertisers than Google/Yahoo
This means that users will probably be disatified which such a search if it launches AND that they will have a harder time monetizing each query than if they chose another partner.
It's unclear to me that MSN could change either of these factors even by 2009.
Comment by erikn — October 25, 2007 @ 4:41 pm
I am with Lee on this one – MSN search may suck but this is the time of the land grab and they just got some serious location on the board. Google stock is undervalued right now – they are going to show some serious earnings in the next quarter. Bottom line – print and TV advertising is losing big time and with Facebook providing laser guided marketing – it is every product pushers wet dream!580 million for MySpace! how absurd – fast forward 27 months – that is a sweet bargain for News Corp – times they are a changin!Cheers,Eric
Comment by E Dewhirst — October 25, 2007 @ 6:29 pm
“The value of a social network is defined not only by who’s on it, but by who’s excluded.â€exactly. that's the difference/value of being in aSmallWorld.net and aBigWorld.net
Comment by The Pageman — October 25, 2007 @ 7:15 pm
I am with Lee on this one – MSN search may suck but this is the time of the land grab and they just got some serious location on the board. Google stock is undervalued right now – they are going to show some serious earnings in the next quarter. Bottom line – print and TV advertising is losing big time and with Facebook providing laser guided marketing – it is every product pushers wet dream!
580 million for MySpace! how absurd – fast forward 27 months – that is a sweet bargain for News Corp – times they are a changin!
Cheers,
Eric
Comment by E Dewhirst — October 25, 2007 @ 7:29 pm
“The value of a social network is defined not only by who’s on it, but by who’s excluded.â€
exactly. that's the difference/value of being in aSmallWorld.net and aBigWorld.net
Comment by The Pageman — October 25, 2007 @ 8:15 pm
I disagree that facebook provides "laser guided marketing". I do think that it is nice that you can provide some extra value by advertising say a new rock album to someone who has declared themselves to be a U2 fan. However, facebook still has a problem of intent. The problem is that when most people come to facebook they are there to read the feeds, catch up with people and have social interactions. When they are looking to buy something, they are usually going to a search property or something like Amazon/Ebay. It's unclear to me that facebook, by providing a search box/shopping place will be able to get people to perform this kind of context switch. I'm not saying that there won't be some overflow, just that the talk of $100bn valuations is basically masterbatory at this point.
Comment by erikn — October 26, 2007 @ 6:00 am
[...] l’operazione Facebook, ad un livello di prezzo che non si vedeva da almeno sei anni, mentre AllFacebook si chiede se Facebook sia attualmente un pò sopravvalutata, ma esalta la “scommessa” [...]
Pingback by Facebook: il fenomeno | Stalkk.ed — October 26, 2007 @ 6:35 am
I disagree that facebook provides "laser guided marketing".
I do think that it is nice that you can provide some extra value by advertising say a new rock album to someone who has declared themselves to be a U2 fan. However, facebook still has a problem of intent. The problem is that when most people come to facebook they are there to read the feeds, catch up with people and have social interactions. When they are looking to buy something, they are usually going to a search property or something like Amazon/Ebay. It's unclear to me that facebook, by providing a search box/shopping place will be able to get people to perform this kind of context switch. I'm not saying that there won't be some overflow, just that the talk of $100bn valuations is basically masterbatory at this point.
Comment by erikn — October 26, 2007 @ 7:00 am
"1. Growth to 200 million active users2. Powering 18 to 36 billion web searchs in 2008 and 2009 which will generate $2 and $4 billion in Cost Per Click Keyword-driven (i.e., Google-style Text Link) ads3. Offering a Facebook Mall with 1,000 top merchants each paying $1 million per year in base rent plus 5% of Gross Sales in Overage Rent"Hahaha…that is really funny…right now..does anyone know how many total users Facebook has? 50 million or less? and how many of those are active? and how many of the active users are clicking on ads?Ads…on facebook are not generating significant revenue. If they did, they will definately brag about it. Currently they are not even releasing their CTR, which is comical hearing people saying Facebook will take down Google.People go to Facebook not to search or look for businesses. People go to Facebook to socialize. So naturally you are not going to generate a lot of CTR. To make things worst, the younger computer savvy crowd have trained their eyes to automatically ignore ads on websites. How many times any of you have clicked on an ad on facebook? Zero to less than 3? Facebook is a hype carefully crafted by investors who are trying to take advantage of gullible people. It will not last that long.
Comment by Craig Lu — October 26, 2007 @ 8:48 am
"1. Growth to 200 million active users
2. Powering 18 to 36 billion web searchs in 2008 and 2009 which will generate $2 and $4 billion in Cost Per Click Keyword-driven (i.e., Google-style Text Link) ads
3. Offering a Facebook Mall with 1,000 top merchants each paying $1 million per year in base rent plus 5% of Gross Sales in Overage Rent"
Hahaha…that is really funny…right now..does anyone know how many total users Facebook has? 50 million or less? and how many of those are active? and how many of the active users are clicking on ads?
Ads…on facebook are not generating significant revenue. If they did, they will definately brag about it. Currently they are not even releasing their CTR, which is comical hearing people saying Facebook will take down Google.
People go to Facebook not to search or look for businesses. People go to Facebook to socialize. So naturally you are not going to generate a lot of CTR. To make things worst, the younger computer savvy crowd have trained their eyes to automatically ignore ads on websites. How many times any of you have clicked on an ad on facebook? Zero to less than 3? Facebook is a hype carefully crafted by investors who are trying to take advantage of gullible people. It will not last that long.
Comment by Craig Lu — October 26, 2007 @ 9:48 am
[...] that MySpace would be worth $65 billion based on the fact that they have 185 million users. As I said yesterday, the present value of Facebook is nowhere near $15 billion. If Facebook was worth $15 billion [...]
Pingback by Is MySpace Worth $65 Billion? - The Unofficial Facebook Blog — October 26, 2007 @ 1:23 pm