On October 24th 2007, Microsoft won a bidding war against Google for a small stake in the social networking site Facebook.com. The result was that Microsoft spent $240 million for a measly 1.6% share of Facebook, Inc. This figure sets Facebook's valuation at a whopping $15 billion.
To try to grasp how much money 15 billion really is, here are the dimensions of a standard United States one dollar bill.
If you pile 3,000 of those together you get a pile that looks like this:
Now it gets interesting. Here is a pile the size of Facebook's founder Mark Zuckerberg:
Lastly, the 15 billion one dollar bills that represent the valuation of Facebook:
See the person in the bottom right? That is Mark Zuckerberg with a huge freaking smile on his face.
Why would the brilliant businessmen at Microsoft buy a share of Facebook for that ridiculous amount of money? The answer lays on Facebook's potential to dominate Microsoft's current advertising competition.
Traditional media advertisers prioritize ads based on how much companies are willing to pay. The advertisers focus on distracting the customer using a pretty face or funny jingle in order to embed a product or idea in the potential customer's brain. The likelihood that the customer will ever need the product or service is barely a consideration. The result is that many billions of dollars are spent annually on advertising products to people who will never need them (ex. Tampon ads seen by men).
Online advertisers make up for this limitation by taking potential customers' intentions into consideration. Modern search engines deliver ads based on search queries and the content the user is currently viewing. The basic idea is that online users only see ads related to what they are intending to find online. Thus, these ads are much more relevant to the user and on a per ad ratio sell more products.
Facebook has the potential to create a system much better than either of the above mentioned systems. The problem is it is very difficult for outsiders to realize the potential (the reason everyone is confused about Facebook's valuation) and even more difficult for insiders to accomplish (the reason other social networks are not worth as much).
On Facebook, people interact with their friends online. They discuss whom is dating whom, what movies are good, and attempt to retrace their previous inebriated night using photos taken by friends. Those aspects are no different than the other countless social networks. Facebook is different because of the value of its data. It tracks and records all the conversations, actions, and relationships of its users. If this data were fed into the proper advertising platform, the outcome would have the potential to dramatically increase the amount of products sold per ad.
Imagine if all the conversations on Facebook were fed through natural language interpreters in order to understand users' likes and dislikes. Take this a step further and imagine if all of the users' photos were fed through image interpreters to find commercial products. In theory, a system could be created that is sophisticated enough to identify the clothing brand of a person featured in an image, determine who is influenced by this person, and use this information to market to specific targets. Think about the impact on a high-schooler who sees an ad delivered on Facebook featuring the beautiful cheerleader at his school with a Pepsi can in the background. This system could work equally well for co-workers, family members, and significant others. The possibilities for 'relationship driven advertising' are practically endless.
This kind of system would enable companies to stop spending millions for a celebrity endorsement and start buying a guaranteed recommendation from an influencer of a potential buyer for a fraction of the cost.
If a company could be the sole provider of this superior advertising system, they would be positioned to serve a majority of ads online and lead the movement of dollars spent offline to their service online. Microsoft realizes this and subsequently views the potential value of Facebook and its data at $15 billion.
To make this a reality, Facebook will need the help of some of the smartest people in the world. Together they will need to build an advertisement platform capable of understanding users at a level never before achieved with technology. They will need to write software far superior to the current data interpreters, and they will need to work on a much larger scale. This advertising platform will first work with text and eventually start working with images and videos. Currently, the major search engines are the only systems in the public sector capable of anything remotely like what Facebook needs.
This is precisely why Facebook is working so hard to get people from Google. Trusted sources report that top employees are switching from Google at a rate of two to four a month. In addition, Facebook is targeting major universities and employees from Yahoo and Microsoft. They are using the reputation of their company to attract the best and brightest from all around the world.
Only time will tell if they will succeed. So far, Zuckerberg's execution of monetizing ads has failed miserably. He continues to lead his company with a cautionary style of making big changes and then panicking quickly after launch. (e.g., photos, News Feed, Beacon, and, most notably, Facebook's Platform). He has chosen the risky path of refusing the appointment of a more experienced CEO and subsequently has made many basic mistakes. The current path the company is taking is leading some Facebook users to become frustrated by spam and start looking at alternative social networks. Right now this is a small trickle, but if left unresolved it could lead to major issues for Facebook in the future.
Facebook Spam
Facebook has the potential to revolutionize the advertising industry. It has a strong foundation of tens of millions of users and all the money it needs. With all the pieces in place, Facebook's success will rely solely on how well it executes its extraordinary plan. To Facebook and Mark Zuckerberg, I wish you the best of luck--you are going to need it.
Special thanks to crunchweb.net for the money images.
facebook users don't need ads. they need coupons. A coupon to get 5 bucks off their next purchase of Nike's, coupons for 2 Big Macs for one. Sponsored coupons for a few free ringtones.
Don't give them ads - it's their parents that pay for stuff. Give them coupons that lower the cost of the stuff they have to pay for (food, sundries, etc.), so they'll have more money to party(i.e. beer).
Forget ads - they want coupons.
Targeted coupons: Look at the person's network, figure out the drinking age in the county they say they're in. Serve them coupons for beer if they're over 18, 21 or whichever age is relevant. Then, Facebook won't be worth 15 billion dollars. Facebook will be priceless.
Bingo Jane! I'd bet a million bucks that you and Rebecca - not so far out of college, could come up with a winning marketing plan for Facebook.
I would love to see you write a post on exactly how you would do that. Now that would be one helluva post!
The suits on Madison Avenue just don't get it. They're missing the boat on this one altogether. As a student friend told me - "I see an ad on facebook that will lower my cingular bill. I don't give a crap. My parents pay for my cell phone."
It could be argued that it's just semantics and that a coupon could actually be considered an ad. Fine but just don't call it an ad network. Call it a coupon network, target the hell out of it, and make it something they can print and use right away. That's the key.
Uh, I use Facebook and I'm 24. My parents don't pay for my stuff.
Yeah, I'm 26 and I use it. I take offense to that...although I must admit, my mother still buys me socks.
Yeah, although I like the coupons idea (and the idea that the ad model can be improved in general), there are so many adults on Facebook now. There's a Facebook group called "Unlike 99% of people on Facebook, I was born in the 70s." That's probably not so true anymore. I'm not saying that 16-23 year olds aren't a huge part of the community anymore, but the site is full of more than just high school / college kids now.
Just take people like me. I was an early-adopter of Facebook. When I joined, I was 20. Now I'm 24 and no longer in college. Most of the people who joined in the early days have now graduated. Although if Mum wanted to front my cell bill, I'd totally let her :P
Great point, Jane!
I think what matters here are the relationships, which when established, and when a pattern of communicating and related is well founded between people, even if it is from accross the campus and not really "tight" friends, we tend to want to relate to "our pack." There is something so profoundly about relationship here that we can overlook its own potential, and that's what makes FB a valueable property.
Last fall, a lot of young people were moaning about US Politics for example, and on New Year's I had to cheer up a few under-30's in the doldrums about their future, and the future of the US. These were people who had been texting along with a growing population of younger for at least the last six years.
I repeated, "Cheer up! The news is good! Go text someone! Get on FB and give someone a hug!" I am imagining the droves going to the polls and outpacing the Republicans two to one is an illustration of the power of texting. "Did u vote?" on the text message may have gone out to the exponentially expanding numbers on Super Tuesday, or in Iowa. It was the young generation who showed up in huge numbers, all wishing for a change.
Similarly, on FB or most any other social network, a powerful juggernaut has been launched, and the valuation of this is clouded only by the rising numbers (certainly not receding ones) that describe the continuing importance of groups, relationships, friending, notifications, shared photos and all the elements of how we hang out together.
This is not going to fade: It will change the way we look at the "Internets" as these social networks are taken as "An Internet within the Internet." Efficiency, relating and power: Watch out! The counter-intuitive explosion will be twice as large next year. It is already twice its size from over 18 months ago.
Advertisers that I have met are very hushed about how excited they are about their returns. One top marketing guru said, "I selected people from within one company and my click-through was phenomenal." I don't think they want the world to catch on so fast as their opportunity is occurring as I type these words.
"Uh, I use Facebook and I'm 24. My parents don't pay for my stuff."
It wasn't a knock on Facebook users - my comment was a bit rhetorical.
I realize the facebook demographic is changing (i.e. 60% of the site's users are not in college networks, and the fastest-growing demographic is 25 and over), however I still believe that a targeted coupon campaign versus a traditional ad campaign would have a far greater converison rate - particularly it if were localized and providing immediate benefit. Just my $.02
I'm 37 and I use it. Admittedly, though, mostly I just go on it when someone posts to my wall, and go "What the hell's a wall?" Then I start reading about how I got vampire bit and zombie cursed and Jedi bitch-slapped, and I write a letter to the editor bemoaning the youth of America. Then I open up the front door and yell at the kids to get off my lawn.
Edit: I have to admit that I'm only half-kidding. I still go on Facebook and really don't understand what it's for. I hate to think I can have generational habits (I'm not that old, am I?), and I've been on the internet virtually since there's been an internet, but I'm more comfortable on sites where the goals are clearer, like LinkedIn or even LiveJournal.
Can I at least get my Frisbee back?
No. I'm sick and tired of you hippies and your "flying discs".
Hahaha - that was hilarious.
"...I start reading about how I got vampire bit and zombie cursed and Jedi bitch-slapped, and I write a letter to the editor bemoaning the youth of America. Then I open up the front door and yell at the kids to get off my lawn."
Peter, That is about the single funniest paragraph I have read in a long time.
My goals at Facebook are pretty simple for me to define:
On top of that, I use it as a photo album and an event planner and calendar, and am starting to use it as a bookmarking service. Sometimes it seems that Facebook became one of those "all-in-one" social media services that people are always trying to create but usually fail to really achieve.
Sorry Sean, you're showing your age! This sugegsts that 50% of users on Facebook are 25+, with most of those being over 35. Certainly my own experience in the UK suggests that there is a large 20 & 30-something audience.
Edit - just realised a lot of people already said this! Must read all sub-comments first.
The old people user base it totally growing...and in 5 years those punk as kids are gunna be on their own.
But I think that coupons are a sweet idea.
Hmm, I don't like to be critical of you guys twice in as many days, but you left out a huge problem here. The users intent/usage or whatever you want to call it. There's been a barrage of posts in the past 3-6 months pointing out that although it theory it sounds good, in practice the users just don't click on the ads. They're too busy chatting with friends to be clicking on/looking at ads. Contrast a search engine where users actually come to the site to leave. They are looking for something and in 'buying mode'. The above post is the pretty standard well known opinion as to why FB could possibly become worth a lot of money. Personally I don't think that's why Microsoft put that money on the table though. For them it's a 'cheap' way to learn a few things about the online world that they might not have known yet. They also become FB's preferred advertising partner which means something. If they thought it was a great deal they would have bought a lot bigger stake :) But with a small stake like this they get the info they need in a much quicker time frame than if they had to go out there and do all of this themselves. They've already got one of the worlds biggest destination sites and arguably one of the worlds biggest social 'networks' (hotmail anyone?). With knowledge gained from FB they can jumpstart increasing ad rev across the board on their own sites.
Personally I'm really happy to see Microsoft getting into the online ad space like they have been of late. I think everyone is sick and tired of the power that G has -no matter how much you love them, they have you by the n**s- and some competition is healthy all around. And that's coming from an Apple guy LOL
SamIAm,
First of all never feel bad about giving me constructive criticism. I full heartedly believe that is most cases the best option is a compromise between opposing opinions. I am new at this and I would love to get feedback. Everyone should feel free to e-mail me and let me know how I can serve you better!
Secondly, I want to address your point about Facebook's demographic not clicking on ads. I COMPLETELY AGREE WITH YOU. I believe that my demographic does not respond to interruption based advertising. We use TIVOs to skip commercials, we have IPods in cars to avoid the radio and we are technological enough to use popup blockers online. However, the above post is based on conversations I have had with top Microsoft employees.
I had a great conversation where the employee actually said that his statistical evidence led him to believe that my demographic does click on a fair amount of ads. Thus, Microsoft does think online ads work for Facebook's demographic. At first I just shrugged the comment off but later I realized that Microsoft does have the data to understand conversion rates much better than I do. I also thought about all the money being made on Myspace ads. I think his logic is counterintuitive but he may be correct.
This is a terrific post, Danny. I have to say that I really question Facebook's value, and I think it's fairly risky, but I guess I can understand that Microsoft might be willing to take that risk given the potential gains. I agree that you'll need some very, very smart people to write that software, but you'll also need to make sure that this new, more targeted advertising, really can break through the traditional banner blindness (and advertising-animosity) of the Facebook generation.
That... and it's only a matter of time before standard browser plug-ins start blocking Facebook ad delivery :)
This ad blocking might be the beginning of the end.At the moment Facebook is on top of the web2.0-social-service wave but all these end one day I guess. Even thought they collect a lot of data (which Google probably has already) it will not last forever like the mentione Ford motors.If I was Mark Zuckerberg I would sell my part of the pie as long as it is worth that much. The estimated 30% by Danny are really a quiet big part and worth 4.5bn. Come on that would make him the 177th richest man in the world...
i agree /
- facebook isn't worth more than 3-4 billion.
what do you think today? March 2, 2010.
how much longer till those ad-blocking-browsers-plugins are ready?
Still question a $15B valuation for Facebook?
Cmmon Danny, be precise. Te-me, how big that Mark's dollar bill building would be - Statue of liberty or Mt. Everest ? Coz m a big fan of Mark Zuckerberg. Awesome post ! :)
Pulkit007,
I like your attention to detail. The pile of money shown in the picture (15 billion one dollar bills) is 60 feet high, 150 feet long, and 62½ feet deep. Oddly, that is almost the exact size of the Sphinx in Egypt.
As far as "how big would Mark's dollar bill building be"
I have done a lot of work trying to figure out how much of the company Zuckerberg actually owns. I put him close to 30% which is very high compared to similar companies.
Kevin Rose (Digg) for example owns less than 12% of the company he started.
Anyway you look at it, his pile of money is big.
When Google acquired 'neven vision', It became quite eminent that Google was well aware of Zuckerberg's future plans of behavorial targeting. So as the stakes are actually high, he does needs our best wishes !
And Sphinx was quite precise ! Thanks for all the calculations :)
* I mean acquired...
Mark Zuckerberg is only 5 feet tall?!
Nah, he seems to be taller than 5 ft to me. I even tried to google but coudnt really figure out. Only Danny can tell, if Mark is actually 5..?
BTW - Just a reminder on how we use thumbs here at SEOmoz. They're not intended to be an "I agree with points in this article" or "I disagree with points in this article" but rather a "I think this is a great topic worthy of discussion and want to see more of it on SEOmoz" vs. "I think this topic doesn't belong on SEOmoz and didn't get value from it."
I'm certainly not sold on the value of Facebook, but I think Danny's piece is really good, discussion-worthy, and useful to the community. That, and it's only his second blog post as our intern. :)
The thumbs icons are really neat have certainly become part of the way we brand the site, but because of the way people use the "thumb signals" in real life, I believe people will always be tempted to use them in a more personal way, indicating their opinion on the topic, rather than whether or not they think it's worth discussing.
I'd never want us to change the thumbs to icons that said (hypotheticallly, because this couldn't ever fit into such a small space!) "Do you think this topic is worth discussing at SEOmoz? Y / N?" but it seems that the nature of "thumbs" is going to elicit a different response.
Gotta disagree with you, Rand. We shouldn't dictate how to use thumbs on this site. Look at every other site that uses thumbs or an up/down mod system (Digg, reddit, Propeller, Sphinn)--conventional definition is "I like it or I agree = thumb/vote up; I don't like it or I disagree = thumb/vote down."
Though I think this is a bad idea, if you want to convey your idea of "I think this is a great topic worthy of discussion," you'd have to get rid of the option to thumb down or provide negative thumbs...and where's the fun in that? :)
Maybe the diplomatic answer here is to include three options:
Now there's a solution!
"Throw Feces At Poster"
Big Tequila - If I were you, I'd keep that idea on the down low. Slide made a million $$$ allowing facebook users to throw virtual sheep at each other. Damn - can you imagine the haul if you could throw feces at people! Holy cow.
Damn it, you're right! Eh, what's a million dollars these days anyway? It's only like...673,809 Euros.
Besides, I can't in good conscience take credit for the idea. We apes have been tossing our feces in anger for eons.
I suggested turning the thumbs down into a middle finger and Rand just looked at me sadly.
LOL - I was going to say that! Then I went with the feces tossing, because that's more in line with my maturity level.
hahaha
I dunno, on one hand, I agree with rebecca because I think it's good to see absolute measurable values of who stands where on what issues, on the other hand, I agree with rand...if you were to take that to the extreme, seomoz might just turn into reddit, where literally every story has an extreme bias toward one specific point of view.
On a third hand...it also would change the ranking system and how seomoz values it's best writers, the best writers have the most thumbs up. By turning the thumbs into a metric of whether you agree with that person or not, you are going to systematically (albeit slowly) phase out the people who hold an opinion (whatever opinion that might be)
Does anyone understand what I just said?
Not really.
(kidding)
It's all bells and whistles from here, pal.
I like the introduction of the uncanny "third hand," though.
In all seriousness, I hear what you're saying, but I don't particularly agree that it's all about who's the "best writer." I think the nice part about the Thumbs Up/Down system is that it is somewhat vague...it's an indication of general approval/disapproval. I think once you try to nail it down (i.e. "I like this post and find it valuable" or "this is not the poster's best work, but he/she is still a good shit) you're taking something away.
Bottom line: there's been some abuse of the system from the beginning, but things haven't gotten out of hand yet...I say keep it as is...but maybe consider adding the "throw feces" option.
Hahaha.. thumbed for the third hand comment.
Another point to think about is, if Rands given definition for thumbs is true, does the same apply to comments? I guess you're right BigT it needs to be a generalized term, in which case...rand...you lose :)
@ Calamier
I'm still marvelling that you have three hands. That could really be helpful in a feces throwing contest.
Edit: Just noticed Big Tequila's comment above. No joke plagiarism intended. Please don't throw the feces this way.
BTW - I hate that word. There's a crappo pizza chain here in Texas called CiCi's Pizza. Guess what the nickname is? I'll give you a hint - rhymes with CiCi's.
Marketing 101 - Don't name your business to rhyme with a word like feces.
Marketing 102 - Don't name your daughter "Dolores" or "Mulva" for that matter.
I have a vague suspicion that a few people didn't realize that Danny is staff, thought his article had been promoted from YOUmoz, and didn't feel like it should have been. I've noticed a touchiness on that subject (not saying it's right or wrong).
Oh, good point. Danny Dover is our intern, folks!
I don't agree with the valuation of FB either... but its an amazing piece considering he's only 7 years old!
We recruit 'em young here at SEOmoz.
I just want one of those stacks... Is that too much to ask?
Being an avid user of Facebook, and 21, I've been working on a way to use this exact marketing strategy to help companies market themselves with coupons, free passes, beer, etc.
I am also working on a way of connecting companies with users thru Tags, or surveys, so they can target exactly what the people really want.
@ Jayhawk,
Care to give a couple of examples?
Interesting concept. I think if you really want to get it work you will have to web2.0ify (Copyright Danny Dover) coupons. Coupons are currently associated with a older generation and have negative connotations.
To make them work in my demographic you are going to need to make it quick and convenient.
Shy away from having students cut out coupons. Paper and ink is a scarce resource for college students. You might want to try a system where you text message the coupon or have it downloadable to a IPod. It would be much cooler to flash a cell phone or IPod to get a discount.
Good Luck
That's pretty cool Danny.
How about a barcode image download to a nano that can be scanned at purchase for the discount?
I do agree with having a more efficient and less old school way of getting the coupon. I'm 28 and I'm on facebook all the time. Sometimes I log in and I have no idea why I'm even in there. Most of my friends are about my age and we've never clicked on an ad on FB on purpose. I've never found one to be appealing or interesting enough to me to warrant the need for extra info.
If you're giving free stuff away, I'll be even more uninterested in it. But I'd take a coupon anytime. I dont have a printer at home, and even if I do print the coupon, I always forget to bring it along. Perhaps a phone text message or password I can flash to get a discount somewhere would work. That way you can track the purchase back to the FB ad.
This is a very well argued post Danny, but one that I simply don't buy. And neither, it seems, do Microsoft; Steve Ballmer recently said
This whole thing relies on two things, neither of which seems anything like inevitable right now (or even that likely).
One is the continued growth rates of Facebook's user base - we were looking at MySpace's growth rates recently and we reckon that it may well be at the top of the S curve and there's nothing to say that Facebook is going to be free of the same growth slump.
Secondly, as Sam has mentioned, is the fact that people simply don't seem to click on the ads on social networks, and I'm yet to be convinced that even the most clever targeting in the world is going to change this all that much - the intent of the users when they're on a Facebook is simply different to that of a searcher.
Of course I've been wrong before so....
Great point about Steve Ballmer's quote, although I should point out that Steve Ballmer changes his mind publicly very often. I remember he mentioned something along the lines of "Facebook has no future"* shortly before Microsoft invested.
Secondly, concerning targeted advertising. I see the future of Facebook ads more like Time Square billboards. Their primary purpose won't be to be clicked but rather to create brand awareness using influencers.
*paraphrased, I can't find the exact quote because he said it at a lecture I attended
I see the future of Facebook ads more like Time Square billboards. Their primary purpose won't be to be clicked but rather to create brand awareness using influencers.
Fair enough, but the cost of such ads is generally pretty bloody low (which is why so many online publishers are struggling to make their online revenue models work.
I think that today's move by Microsoft to buy Yahoo! for $45 billion perfectly highlights the difference between a valuation (Yahoo!) & an investment (Facebook).
Indeed Ciaran, just saw the news myself - and reinforces the value of investment in facebook.
I actually think it makes the $15 billion valuation of facebook look even more shaky and backs the argument that Microsoft are just doing this to get a foot in the door with FB, and that it shouldn't be used as a valuation...
You make a good point - if the Times (yes I've been amused to see the debacle they've ended up in that was picked up on your blog ciaran) are right then Microsoft have $30 billion in cash, putting a bid in for yahoo for $44billion would most likely mean that they wouldnt have the cash to put $15 billion to Facebook as well.
Still Facebook and its data is sure to be immensely valuable to whoever finds a way to exploit it - perhaps the YahSoft deal would create a group capable of doing so??
The Times one is interesting isn't it?!
;)
I don't think that anyone is saying Microsoft is thinking of buying Facebook for $15 billion, but that their investment means that's how much it would cost. Which I'm not sure about..
Fantastic article. I love the money diagram. I wouldn't mind being homeless if I got that big box of papers to live in.
I don't know why we should doubt the value of FB at 15B. For one, internet advertising has not been quite as effective as everyone would like because most companies advertise on sites based on its similarity ot industry and hope to hit their target in that way.
FB is a very indepth social networking site that stores not only personal demo information, but also consumer behavior as well. Pictures, applications, and the information they present is precisely the type of information marketing folk love to use in advertising. Even if you doubt the effectiveness of internet marketing. If you DO do them, wouldn't you like to do it knowing you're reaching your target customers? Wouldn't make it a total waste.
Sean: I've been thinking about this since the beginning of first semester. While home on winter break I mentioned it to some people in the Web Marketing Business and explained my ideas.
It's still a work in progress.....they don't teach Web marketing classes at KU so these posts are real helpful.
Between my Facebook "friends" and some of my professors, I've been getting some good ideas about what would actually work.
It's too soon to share........ I'm not to proud to say I don't know enough yet!
I'm fairly certain they don't (or didn't in 2006, at least) teach web marketing at my college, either. I have friends who graduated with marketing and advertising degrees who have no idea how search engines work, who would think you'd made a typo if they saw you write "digg" and who have never even heard of search engine optimisation.
Epic fail on the part of the universities, although I assume that this will change in the near future.
Scarily enough, I'm actually giving a lecture on digital marketing to a bunch of business & IT students next month. I guess they;'re learning (or at least they would be if I wasn't giving the talk!)
@jayhawk - fair enough. Being a facebook user that's still in college, it would be interesting to see what you feel may or may not work in terms of targeting your demographic. If you're interested in sharing those ideas you might even consider submitting an article in the Youmoz section here.
Good luck.
Just to clarify, My Marketing Plan has to do with marketing directly to colleges.
For example, All those businesses set up kiosks at all the home football games: ATT, local banks, T-mobile, etc. If they advertised in sync with the day of a home game on facebook........................
Anyway, you get the gist, it's going to take some effort on my part to figure out the logistics. If it gets put together correctly, both the business and the consumer will both benefit.
interesting topic, really great
Very interesting stuff. Seems amazing that a bunch of people discussing mostly banal, every day trivialities can be worth so much doesn't it?
Facebook Finances
If you see there you can get some tips on the facebook financials from Zuckerburg....
Highlights:
Revenue for Facebook for 2007 will be $150 million, as has been widely reported. But for 2008, Zuckerberg projected revenue to be increased to $300 to $350 million.
More interesting was the news that Facebook would spend $200 million next year on capital expenditures, which is a whole lot of servers.
sorry for edits there... was having issues with inserting link...
Great post Danny - I'd wonder if the Pharoah's had Zuckerberg in mind when doing the Sphinx... A giant cat/man head made out of dollar bills.....
As to the marketing, if MSN can get FB to drop a cookie that they can link to/read then they've got a google killer - so for example - i'm searching on MSN for something, or visiting a 3rd party site, and they're able to read what my interests/activities are:
so for MSN search - when i search "music" the PPC ad's return ad's that are relevant to my FB music interests & events attended. Thus better conversion than the Google keyword&location ad's
and for 3rd party sites - when i visit a sites homepage (a'la BBC beta page) it automatically presents the components/content that they've decided matches my FB profile. Think companies would pay a good subscription fee to be able to do this, as they'd present the user a better offer and thus get higher conversions on the same traffic.
Still you'd be able to make a nice bed with that money...
Very cool graphic Danny. I agree with robbothan that the biggest payoff for MS may be off the FB site, using the information collected during a user's social networking activites and applying it to shopping activites. Search could be customized to show reccomendations and reviews that are relevant to your interests and those of your friends.
I think over the next few years we'll see an integration of social networking/bookmarking with shopping sites and search. It's a complicated proposition and requires that marketers move beyond the obvious, obnoxious practice of simply sticking more targeted ads in the middle of a page.
Even if the ad is more targeted than the tampon ad shown to a man, it's still an ad, a disruptive force that's not related to the social networking experience. It might be useful in the "times square" model for bigger brands trying to reinforce a general brand awareness. However, for the millions of smaller businesses that could really benefit from intensely segmented target audiences, the display model is weak at best. It takes a lot of restraint to look at all the traffic on a site like FB and make a strategic decision to minimize the clutter and restrain the more overt ads, but it might be the only thing that can keep FB users from abandoning the site in the long run.
If marketers can make their "ads" so seamless that they're perceived as a timesaver or as one more usability feature, customers will be grateful and will vote with their virtual wallets. I personally would work toward developing features that focus on product reviews and build on the trust that people have in their social networks.
The biggest thing to avoid, however, is that creepy sense that FB knows everything you're doing, and might reveal it to others without your knowledge (beacon, anyone?). If MS takes this in the wrong direction, they could drive FB into the ground as quickly as Friendster bit the dust. But if they harness the increasing power of social influence on shopping habits, they could make that big sphinx-sized pile of money grow to the point where it wouldn't even fit within Egypt's borders.
This is all assuming they can leverage this without users creating a backlash. All it takes is a wrong move, or a little excessive advertising, and people will start to leave for the next big thing.
I love the stack-of-money diagrams. I'd love it more if I actually had one of those stacks, but you can't have everything.
Like many others, I doubt the valuation, but you certainly raise some interesting points. I think the big question mark isn't the potential, but whether Facebook can execute on it.
Personally, though, I still suspect that Microsoft's first motivation was to price Google out of buying Facebook outright.
Great post and nice job on the money stacks ;) and personally I think it may worth the 15b but thats a risky one.
An interesting article; however I don't think this gives a definitive answer. I don't personally believe it's worth 15 billion anything right now, it still needs to go a long way to prove itself. Microsoft has so much money they basically afford to gamble on Facebook's future value, especially with what is a comparitively small stake. I'm not up on the figures, but I'm pretty sure they've yet to convince many other people to cough up the remaining 14.7 billion.
I would say that the definitive reason why facebook is worth so much is the fact that the advertising and media landscape is changing so rapidly at the moment that everyone is desperately trying to work out where things are headed. That kind of panic means that as soon as something appears to be a solid proposition, although it's poorly understood, people flock to it in a bid for security.
Of course, we can all remember how google was regarded by many commentators as a white elephant for years and we know how that turned out. So my slightly lame eventual conclusion is it's too early to tell.
I don't see how. This figure is a reflex of the bidding war and means that MS was willing to invest 240 million on Facebook that gets its foot on the door for advertising and for being a preferential partner/stakeholder in the future, so there's a considerable prize in there. Perhaps 240 for 1,6 is a better deal for Facebook than 500 million for 4% (valuation of 12,5 b.)
Very nice post. Awesome job!
Firstly, thank you for taking the effort to explain what 15 billion bucks lool like - just impressive.
Secondly, the fact that FB "tracks and records all the conversations, actions and relationships of its users" is a bit scary. It reminds me of 'Google is watching you' video I saw a few days ago.
Thirdly, Mozzers, please sphinn this great post!
Does anyone have any data on how often Facebook users click on ads? It seems like everyone is saying that they don't click on the ads, but in my experience, I've clicked on a lot of ads in Facebook (I know, the plural of anecdote is not data).
Also, as a Facebook advertiser, I get CTRs of .05% to .25%. That's not great, but it seems to be comparable to a contextually-targeted campaign with AdWords (although I don't have much experience with those campaigns so admittedly my numbers might be really low).
I definitely have a hard time believing that Facebook is really worth $15 billion at the end of the day. A few billion, sure...which is nothing shake a stick at really.
I do, however, have a hard time believing that Microsoft's investment in Facebook at that price wasn't a declaration of perceived value - no matter what Steve Ballmer says about it now.
You have to wonder - nobody had that $15 billion figure in mind until the MS deal came out. What, other than that deal, would hold the value of Facebook that high? I just don't see it.
I'm an active Facebook user going on about three years now. The honest truth: I've never once clicked on an ad.