Is Facebook worth $15 billion?

It’s funny how Facebook turns from the cool kid in town to the lurking evil (reminiscent Microsoft) almost overnight, after its sellout of its users in the upcoming Facebook Ad. I can’t wait to see Facebook fade away to obscurity, like the once-almighty AOL who once acted as gatekeeper to the web for its millions of users, and who died the slow death of trying to keep that proprietary gateway.

Others have mentioned this but the amount of money Microsoft invested must be looked at in context. $250M for Microsoft is not an exceptionally large amount of money, given they’re capitalized at $320B. With that said I joined facebook my freshmen year in college when it was an application targeted at college students since that time I have “deactivated” my account as have a number of my friends because of what the platform has evolved into. Do the actions of a few people speak for the majority of people? Clearly, the answer is no. However, I don’t regularly hear about Google, for example, evolving from what made it popular in the first place.

I can’t say exactly how Facebook is worth, but I can see how it can be worth this much money.

Imagine if Facebook adapts Google’s ad model - auction and pay-per-click, and implements that across the entire network.

They already crept into that space with ‘Facebook flyers’, they work the same way - it is cpc advertising and I can target people based on profile info such as age or age range, sex, location (down to city) and keywords such as ‘music’

That is certainly a powerful advertising platform.

As for Microsoft - smart move - it can really leverage the recent purchases of AdECN and Aquantive

I think this is an excellent move for MSFT. Keeping google out and getting a good deal on one of the best social networks around. Moreover, what’s 250M for them anyway…

Plus, all of you who think this is a bad move - I think MS knows how to run their business. I am sure this move was studied in detail before implementation. And if you don’t use facebook, don’t try to predict what the growth rate or the future market of facebook is going to be like.

I have seen this before, projections and valuations based on assumptions made up by some 13 year old CEO. Inherent value is predicated upon real revenue, no assumptions. To say that Facebook will be worth as much or more than GE is ridiculous and should turn any potential investor off. This is a power play between behemoths Microsoft and Google, let them play. It means very little to the small investor.

they are out of their minds. Today’s Facebook could be yesterday’s geocities. Facebook would have to bring in $300 for revenue for each of its 50M members each year…good luck Bill Gates. Stick with doing business in China, which makes Facebook look like peanuts.

Is it really worth $15 Billion ? In my opinion, it was a pretty smart move from Microsoft, seeing that facebook still has a growing community, which probably would endure the test of time. Afterall, the other “social networking” sites like Xanga, MySpace, etc.. dont compare up to the flexible functions of facebook.

I’ve been using facebook for almost half a year now, and to be honest I still havn’t noticed any annoying pop-up ads. Its really simple to use, and the privacy options are top-notch. Convenient, Spam-free, easy to use, and has the potential to grow, what more could microsoft ask for? A smart investment.

Didn’t AOL try to make an internnet a few years back?

As it remains true that many if not most Facebook users are just there for their 15 minutes of fame (read MySpace), Zuckerberg does keep mentioning that Facebook is not a social networking site, but a social utility site.

Considering I don’t send friend requests to thousands of people to make me less lonely, ever since I registered on Facebook, I have not used my instant messenger, nor have I used my email much.

To organize events, even just a party, it’s easier to reach all my real friend via Facebook, and to keep track of who’s coming and who’s not.

And for those oh so worried about the privacy issue, Facebook has the most in-depth privacy settings tool. I can, if I want, not have ANY of my info put out there unless I do so myself. As long as advertizing remains minimal (that banner on the left hand-side, and I ignore those “sponsored polls”), I’ll keep using Facebook. It’s better than my email, and it’s much better than MySpace…

Talking of the “15-minutes of fame” psychology: MySpace is much more “15-minutes of fame” than Facebook. I feel sick in my stomach everytime I mistakenly fall on some MySpace page, lagging my computer with all the sparkles, the automatic music playing, all those movies, etc. Ugh…

Microsoft made a smart play here by putting $250 million into Facebook. I’ve been using Facebook for well over a year now and still have not gotten bored of it. It seems that Facebook is still growing in popularity, so how doesn’t this make sense? Microsoft is buying it’s stake low and will eventually sell high, especially if Facebook one day goes public. My final question though is, why would MSFT put a quarter of a billion dollars into something if they think they will lose?

I trust Facebook like I trust the Devil. It’s all about money - tricking the people into paying for mirages hidden here and there in Facebook’s jungle of insanity and silly childish playtime. It’s for the very worldly minded individual.

It is not the value for Facebook, but its potential value as part of google. Smart move, as usual

250M, that’s it….MS will make that back in less than a year in advertising revenue based off 50M members. Think about it like a sports team, a great athlete can pull in a 100M over a long term contract because he brings home big achievements and wins, and with that fans who advertisers (nike, addidas, gatorade, etc) want to sell things to on the back of the great athlete. So over 7 years many companies are going to sell a ton of shirts, shoes, bottles of water, boxes of cereal, toys, tickets, TV time, etc…and the owner of the athlete is going to get a little piece of each of those pies, gaining tremendously over the long term with royalties and commissions.

Now, think about the fan base Facebook has, imagine it as an athlete. But unlike other athletes this one has the attention of a big percentage of that 50M fan base every day, some for hours a day, to sell sell sell…and MS gets almost exclusive rights for 250M!? Low ball, Facebook should have leased those rights or demanded much more than 250M. Come on, David Beckham got that alone with a one sided fan base - football (soccer) fans. A company like Facebook has a hugely diversified fan base that continues to expand. There’s much more money to be made than that!

Microsoft Expects At Least a 7x Return On Their Recent Facebook Investment

News arrived today that, as predicted in this blog over two months ago, Microsoft would be investing to own a bigger piece of Facebook and would do so at a valuation that implies they ultimately believe that Facebook will be worth around $100 billion. Given that Microsoft was only allowed to buy 1.6% of Facebook for their $240 million (implying a present valuation of $15 billion) and given that Microsoft (along with the hedge funds that may put in another $260 million) like to see a return on their investments, it seems clear that Microsoft and the hedge funds are looking for at least a 7x return on their money (i.e., around a $100 billion future valuation of Facebook).

As I explained to Michael Arrington from the audience at the Dave McClure’s Graphing Social Patterns conference, “valuation” is what a willing buyer and a willing seller agree it is. So, Mark Zuckerberg and Steve Ballmer have agreed that 1.6% of Facebook is worth $240 million implying an overall valuation today for Facebook of $15 billion. However, I’m still confident that Mark Zuckerberg (and Steve Ballmer and I), actually values all of Facebook at around $100 billion. This higher valuation is for the entire company and uses Warren Buffett’s model based on the future cash flows (or Owner’s Earnings) that will come from the business.

For those, like Michael, who say $100 billion is “crazy” or “bubble talk” or “call security time,” I would invite them to engage in the following thought experiment based on three assumptions:

1. Facebook active users count grows to 200 million by Dec. 2008 – this seems highly likely given that facebook already has 49 million users and is doubling every six months. In fact, Facebook will cross the 50 million active user count two month’s sooner than I had predicted in my earlier posts. In addition, Facebook is just now starting to grow in the US business world (even without yet releasing their friend groups feature which will put a nail in LinkedIn’s coffin) and internationally (even without yet offering any localized sites which should be coming soon). This 200 million users by Dec. 2008 assumption ignores the even greater growth that could occur with a little help from the 600+ million users of Microsoft Windows and Office which Steve Ballmer’s team could coax into having facebook accounts by simply updating how new versions of Microsoft’s key software products are installed.

2. Facebook cuts one deal with a major search player to power their web search — given the time spent by facebook users inside of facebook and given that a search box lives in the left-hand nav of every facebook page, it seems quite possible that the half of all facebook user who come to the site every day might do at least one web search (when Facebook picks a partner to power their web search). So for 2008, this works out to 100 million * 0.5 * 365 days = 18 billion web searches per year. Google handles about 64 billion US web searches per year and monetizes these searches at around $0.26 per search == $16 billion. Assuming Facebook’s search engine partner only monetizes these at $0.13 per search due to their relative lack of Cost Per Click search inventory and facebook users’ dislike of leaving facebook, this still works out to $2.3 Billion in search revenue in 2008 and $4.6 Billion in search revenue for 2009. Assuming their search partner takes 20%, this leaves $1.8 billion in 2008 and $3.6 billion in 2009 for facebook. Not bad for a business that is ultimately no more complicated than Facebook signing an “AdSense for Search” type of deal with Microsoft, Yahoo or Ask.

3. Facebook opens an online shopping mall in facebook for the top 1000 cataloger, e-tailers and retailers — the model here is that since Facebook users love to stay inside of Facebook, why not build them a OneCart shopping mall (e.g., like SHOP.COM) that brings all the important merchants and all of their products into a single consistent shopping experience with a single store navigation experience, a single shopper account and a single checkout across all the merchants? Amazon would certainly pay $1 to $2 billion per year to Facebook to power this experience. However, I think Facebook will do better by acquiring SHOP.COM’s patents, brand, 20+ expert e-commerce engineers, 1,000+ vetted merchants and 10+ million products and owning this transactional monetization method themselves. Assuming each store’s base mall rent was $1 million per year to be a part of the new facebook universal shopping cart and each store agreed to incremental overage rent of 5% of gross sales within the facebook mall, this works out to a minimum of $1 billion per year in base mall rent for facebook in 2008 and even more in 2009 as the user base in facebook grows (which would justify a higher base rent) and the overage rent really starts to kick as more folks are trained to actually buy products inside of facebook based on their friends’ active and passive recommendations.

So, with these three simple assumptions, facebook would have revenue of $2+ billion in 2008 and $4+ billion in 2009. Almost all of this revenue will fall straight to facebook’s bottom line because their projected burn rate of $100 million (assuming 1,000 employees by the 2008 - 2009 time period) could be covered by a smattering of contextual, demographically targetted banner ads and ads on the login page.

Under this model, a $100 billion IPO valuation would only be 50 x 2008 earnings and 25 x 2009 earnings.

So, congratulations to both Microsoft and Facebook. To Microsoft because they’ve kept Facebook a “Google-Free Zone” (and this will ultimately let them dethrone Google from their current position in the online advertising eco-system). To Facebook because this $240 million (growing to $500 million) warchest will allow them to hire and/or acquire the resources necessary to defend their birthright to be the dominant Social Operating System in the key markets of the world.

Lastly, hats off to Dave McClure, Rodney Rumford, Ellen McGirt, Jessica Guynn, Brad Stone, Nick ONeill, Justin Smith, Teresa Valdez Klein, Dustin Moskovitz, Chamath Palihapitiya, Dave Morin, Jim Breyer, Paul Madera, Owen Van Atta, Randi Zukerberg, Mark Zuckerberg and Steve Ballmer. You’ve all helped me see through your blogs, articles, stories, comments and actions just how important Facebook will be to the next 20 - 30 years of the software industry.

Thanks,
Lee Lorenzen
CEO, Altura Ventures LLC — the first facebook-only VC

(c) 2007 Altura Ventures LLC.

Lol, all of you people laughing at Facebook are either people who…

a) Are over 40 and pretty much attended college before the invention of the internet

b) Are 12 and therefore can’t use facebook because no one you know uses it

Either way, facebook will be around so long as people attend college… and last time I checked, people are still attending college (at higher rates too may I add). So long as people attend college, and want to network in their college and after graduation, Facebook will be around.

Its value may not be $15 billion, but MSFT doesn’t really care. So long as they keep Google out and themselves in, they probably would have valued the company $25 billion if they had to.

When you have that much money, you pretty much can do what you want. Anyways, I’d rather see them spend money to increase future revenues/market share than see short term returns by giving stock dividends (which they already give a hearty 1.41%, that’s 1.41% more than AAPL).

Long term gains in the stock value won’t be maintained by simple dividends, but instead by real company growth. And this investment will obvious help them bolster their company growth in the online advertising market (along with their acquirement of aQuantive).

Social networking does not rule ones life. It is a small part of ones life.

We spend most of our time outside social networks. Obviously Facebook is a grand widget container - and one can only handle a few widgets at one time.

So, the answer is not clear on the SOS platform that is being pushed by Facebook.

Facebook? It’s the biggest joke the net has ever produced. Why? Because it uses a very simple trick: think Andy Warhol “in the future everybody will be a star for fifteen minutes”. Then think TV and its “future stars” shows that were nothing but a vehicle to sell advertising, but built on the desire of every pimplehead in the world to once make it on national or even better worldwide TV.

But those shows became “so proll” that the “real kids” needed a “really cool something new”.

And here comes this “really cool kid” who looks so proll that he appeals to every other proll kid that ever never won a casting show who gives them all a chance to be seen for a total of fifteen minutes on the world wide show that is the Net.

And so they all post a pic, a comment, tell their friends, their friends click their pic… and all that clicking adds up to, you guessed it, more or less fifteen minutes.

And that’s it.

I JUST LOVE IT - WHAT AN INCREDIBLE JOKE THAT KID PULLED OFF.

AND NOW MICROSOFT PAID HIM TOO?

GAWD, every time I try to pick myself up from the floor, I collapse again laughing.

Anyway, er, let’s be serious here. So most of the kids who posted longer than six months ago are already bored. If you work behind a really good bar in a really good club, you’re the very first know what’s going on and you know by now that the first kids already have outgrown that facebook scene because it’s now become so, and here I shall create a post-facebook word, it’s become so “proll”.

Actually, facebook is becoming kinda proll if you really think about it. “I mean, you know, now Microsoft is like kinda in it and Microsoft is like really proll, not like apple who are really like kinda cool, I mean look at Jobs and then that Microsoft guy, really…”

But the facebook kid is a genius, he’s making a ton out of nothing but a ton of pictures that will each be seen for fifteen minutes and then very quickly forgotten.

I mean, how proll would you have to be to fall for any advertising on ZAT site.

—

Oh, by the way, yep, I created “proll” for the purpose of this message. I heard it once in Germany and it made instant sense. So from now on it’s like a kinda post-facebook thing. Proll doesn’t need explaining, you know something is proll when you see it. If you don’t know what proll is then you are either proll or you have your face on that proll facebook site.

Then there is proll fun, when you do something prolly on purpose, like a hotmail address.

Like, I just created a proll one for the purpose of this comment.

wanna know why?

mail me: jtwyler at hotmail

don’t be a proll, have fun

It’s official: Microsoft is out of ideas. Fortunately for MSFT shareholders it is ‘only’ a $250 mm investment. Perhaps Mr. Icahn should consider taking a stake in the company and pressure Redmond to increase their dividend and buy back shares.

On an unrelated note. Mr. Ballmer, my 3 and 1/2 year old’s teacher seems to think my son has exceptional artistic abilities for someone his age (apparently one needs a trained eye to spot these abilities). I am considering selling a 1 and 2/3 percent interest in all of his future creative works. The bidding starts at $2.5 million

“Facebook, which is closing in on 50 million members, promises to restore control—over privacy, unwanted email, and virtual contact of any kind—to users. That’s a pretty powerful lure, and I’ve already written that, in my opinion, building the “Innernet”—where we can define our persona and limit our contact with the outside world—is the next big stage of online evolution.”

Dude, that’s been tried. It was called “AOL”.

Facebook is just another big hyped up piece, like Skype was. As with eBay who thought it bought into the brave new world, so too will Microsoft suffers the same. But who cares? Microsoft has all the dough (that it’s not giving back to its shareholders), and Zuckerberg will laugh all the way to the bank. And, has anyone bothered to run any focus groups with teens to twentysomethings, on how they feel to have their Facebook page try to sell them stuffs?! I won’t like it, if I’m polled.

It’s ironic that face trys to give back personal power to the uses, but will sell that information for advertising.

I think MSFT made a pretty smart move. $250 MM is small change for MSFT to lock in a deal with FaceBook and close the entry for Google or others to buy a stake (I hope they did). In addition, they get full rights to advertise on FaceBook. If this is a fad, MSFT looses $250 MM, a small change for MSFT. If it wins, it wins big. What I strongly believe is that advertising will not get the company to float. When I use Facebook, advertising is the last thing I look at.