Is Facebook Worth $100 Billion?

[CountDeMoney]

Fuck Facebook. In the face.  You need to find me, I'm in the phone book.

I don't even bother picking up my copy of the phonebook that they leave in the entry way.

What the hell do you use for door stops then?

Why would I need/want a door stop?

Oh, I don't know, nice spring day, open the windows, make sure a sudden breeze doesn't slam a bedroom door accidentally or something.
But hey, fuck you then, you nasty bitch.

[garbon]

Oh, I don't know, nice spring day, open the windows, make sure a sudden breeze doesn't slam a bedroom door accidentally or something.
But hey, fuck you then, you nasty bitch.

My apartment isn't that breezy and isn't very big.

[Phillip V]

http://www.economist.com/node/21546020

[Martinus]

Facebook users aren't their customers. They've merely created a market for others to advertise their wares to. Simlarly with Google. Both are more like owners of a shopping mall or a stock bourse than an actual retailer.

Amazon OTOH would be classified as a retailer (or more accurely internet mail-order company).

Actually, from a business point of view, both users and advertisers are their customers. You don't have to pay money to be considered a customer.

And a shopping mall comparison is not exactly a good one since there is no immediate legal relationship between the shopping mall owner and a shopper. A better comparison is a phone directory publisher - they have dual customer base - people who read phone directories and people who advertise in them, the former usually getting the product for free. However it still helps for the company to think of them in terms of customers - because if they get shitty product, they will go elsewhere, thus affecting the ability to monetize the product vis-a-vis the second group.

Also, what really works in Facebook favor is the network effect (which again makes the business different from shopping mall owners, where the fact that a person X goes to shopping mall A does not necessarily translate into a greater incentive for a person Y to go to the shopping mall).

[OttoVonBismarck]

I think Facebook is rightfully valued more than just their current revenue would suggest. Like many, I'm skeptical if that valuation is $100bn, however even if Facebook is overvalued that doesn't necessarily mean it is in the same category as pre-dot com bust companies. As long as it keeps a profit margin it's not going to kill the company if, over time, the share price declines to reflect a more appropriate valuation. (It won't be grand for the people who buy early stock, though.) Depending on Facebook's stance on things like dividends it could still end up early investors don't get totally fleeced.

It's also possible that the share price mostly stays static for a long time due to investor optimism and maybe eventually Facebook's revenue will be such that there won't be a fear of a market correction to a lower share price.

Two things are now a given when it comes to Facebook, they are going to need to expand their customer base and increase revenue per customer to justify their present valuation. However, neither of those is as easy as flicking on a light switch. In terms of customer base, Facebook is going to eventually reach a point where its customer growth will no longer be very fast, for the simple fact that the internet is only so big and the portion of internet users who want to engage in social networking is only so big and it's likely Facebook is already brushing against the upper limit of this. Internet users will grow as more people come online, but even that has its limits. Further, Facebook's ability to capture users in new internet markets is not guaranteed, countries like China (through its tightly controlled internet) which will be the single biggest market for internet users after the rest of the world is saturated, have spurned major internet trends in the past. The major search engine in China is Baidu, for example, and it's possible a Chinese brand of social networking site will become China's facebook.

Squeezing more money out of existing customers is something every company wants to do, but it's not like you can just say "we'll do it" and make it so. In Facebook's case, from what I've heard until they hire their COO they weren't really interested in making money at the executive level. They were interested in making a cool website, keeping it running, and attracting more users. Their COO is the reason they posted over $1bn in revenue the past few years ($3.7bn most recently), and I do think because they weren't really fully exploiting their potential revenue streams they will be able to get that $/customer number up higher. How easily they get it high enough to justify their valuation is questionable, though. Something worth noting is that something like half of Facebook's revenue comes from microtransactions within Zynga-published games. So if Zynga went under Facebook would be hurt very, very badly.

One thing I think it is worth thinking about is how we look at Facebook. I don't necessarily think they are the same as just another website in the veins of Amazon. Amazon is a tried and true business model and they are a great company making tons of money at it. But I think Facebook is sort of like the internet's version of AT&T in the late 19th century. Meaning, Facebook has created a new network that is almost akin to the telephone in that it's becoming a key piece of society's "infrastructure." The reason it is unlikely Facebook will be eliminated by competitors is because a social network's value is in its user base, and I think the time for the big pioneering social network to establish itself has essentially already passed and Facebook won. In essence I think a natural  monopoly has developed. For Facebook to be totally undone another paradigm shift will have to happen, akin to how the internet and cell phones has made it so that in the next few decades regular land line telephones will probably cease to exist.

[DGuller]

The problem is that paradigm shifts in the Internet industry happen every couple of years.  IMO, not only do investors typically overvalue the growth potential of Internet companies, not realizing that exponential growth cannot last forever, but they also don't factor in the possibility that something new would enter the market and make the existing giant obsolete overnight.

[mongers]

In ten years time, facebook will resemble one of those ghost mining towns in Rockie mountains; people will have moved onto the next great thing.

I've lost count of the number of people who've recently told me they're looking for something different/better/less intrusive/something that isn't such a time sink etc, some people are poised to start the next migration.

I'd make an outside bet that many people might decide to engage more with real life and cut back on their internet use, we are after all still in the first flush of internet use/overuse, well at least for most people. Most lLanguishites are the exception in being such early adopters of the interwebs social characteristics

[Eddie Teach]

I'd make an outside bet that many people might decide to engage more with real life and cut back on their internet use,

Many will, more won't.

[garbon]

I'd make an outside bet that many people might decide to engage more with real life and cut back on their internet use, we are after all still in the first flush of internet use/overuse, well at least for most people. Most lLanguishites are the exception in being such early adopters of the interwebs social characteristics

Except that many users are youth who have always grown up with technology mixed into their social lives (from web to phone). I can see them giving up facebook but internet use?

[DontSayBanana]

I would quibble with describing 1/5 of the world as their "customer" base.  Customer usually means someone who pays.  They have a lot of users who don't directly contribute any revenue.

Well, all the users are the recipients of the company's provided service, the compensation just comes through an intermediary.  Would you not consider someone a customer for using PayPal as an intermediary to pay?


Also, your strict definition pretty much precludes anybody who pays with a credit card- the credit card financier directly contributes the revenue, while the customer simply incurs a debt with the financier.

[jimmy olsen]

845 million people is not even 1/8th the world.

[Martinus]

I'd make an outside bet that many people might decide to engage more with real life and cut back on their internet use,

Many will, more won't.

Not even many will. mongers, as always, is advancing some bullshit luddite idiot argument - as garbon rightly points out, for more and more people, internet is part of daily life the same way electricity or telephones are for older generations.

What's even more funny is that he seems to imply you need to be "inside" in order to consume internet content - he seems to be stuck in 1990s.

[Martinus]

I would quibble with describing 1/5 of the world as their "customer" base.  Customer usually means someone who pays.  They have a lot of users who don't directly contribute any revenue.

Well, all the users are the recipients of the company's provided service, the compensation just comes through an intermediary.  Would you not consider someone a customer for using PayPal as an intermediary to pay?


Also, your strict definition pretty much precludes anybody who pays with a credit card- the credit card financier directly contributes the revenue, while the customer simply incurs a debt with the financier.

Wow, that's more bullshit analogy than the worst one I've ever made.

In a credit card situation, you are being charged for this - the intermediation is a technicality, but you are the one who incurrs the economic cost of the purchase. It's really boneheaded to see this otherwise.

Obviously, the situation is completely different with Facebook where you are not paying for the use.

[Martinus]

The problem is that paradigm shifts in the Internet industry happen every couple of years.  IMO, not only do investors typically overvalue the growth potential of Internet companies, not realizing that exponential growth cannot last forever, but they also don't factor in the possibility that something new would enter the market and make the existing giant obsolete overnight.

This I agree with. Facebook seems quite well entrenched today, but noone remembers MySpace or Friendster (or however the fuck you spelled it). Now, it might very well become dominant for years to come, but past experiences with various dot com bubbles and whatnot would suggest one should be conservative rather than overly optimistic about it - and this valuation is the exact opposite of conservative.

[Zanza]

I can see myself leaving Facebook for something better, but I doubt I'll ever give up on internet access. The only time I don't use it is when I am abroad on vacation. And that's just because roaming is so expensive.