Fifteen Buh-buh-buh-billion for Facebook?
On Tuesday the reported that Microsoft was pursing a stake in Facebook. A year ago, Yahoo was sniffing around at at purchase of Facebook with a reported valuation of $1 billion. But if Microsoft bought a three to five percent stake in the company for $300-$500 million, Facebook would suddenly be valued at $10 billion — half as much as Yahoo. And, reportedly, founder Mark Zuckerberg is holding out for $15 Billion. Eegads.
Facebook has created something of significant value, no doubt. Not only does Facebook have millions of users, for the hottest demographic (at which Facebook is squarely aimed) Facebook has become a seminal application replacing email as the primary use of their computer. I know high school and college kids who are more concerned about getting on to the computer to login to their Facebook accounts than they are to take or make a phone call. It IS how they communicate and interact with their friends. And they've been able to create a lasting and growing entity where MySpace has clearly failed. Viacom's acquisition did not help anything there.
But does anyone know yet how Facebook is going to make money? How will they monetize all those eyeballs in the prime advertising demographic? Chances are, they're going to share that revenue with someone else, which is why they're such and attractive target for a Yahoo or Microsoft particularly since neither seem to be innovating these days, particularly on the Web 2.0 or social networking. At least Google's smart enough to be throwing some research dollars at Carnegie-Mellon for Social Stream.
What will Facebook do with $500 million if they got it? Well, despite their Facebook's constant assertions that thye've built to scale their service to be much larger, me thinks they doth protest too much and an infrastructure investment would follow. Lucky Cisco and mass storage vendors. The other piece is advertising. Online advertising is still pretty primitive in terms of matching ads to viewers. With all the data Facebook has about its highly prized users, an investment in some analytics could reap some serious advertising revenues. Headcount and Aeron chairs probably would be on the spend list, too.
Has Sillycon Valley descended into Bubble 2.0? Reached Delusional Level Red? Nah... I don't think its another case of tulip mania as it is an example of Joe Bessimer's adage (often attributed P.T. Barnum: "There's a sucker born every minute... and two to take 'em."