4 ms·

Facebook: $6 Billion? Nah. [John Battelle]

9 points by aston 19y ago

epi0Bauqu 19y ago
Does anybody else think this logic is crazy? I believe Facebook's two major financing rounds were for $13M and $25M (see http://www.startup-review.com/blog/facebook-case-study-offline-behavior-drives-online-usage.php http://www.startup-review.com/blog/facebook-case-study-offli...). Given those numbers, they couldn't have taken that much money out compared to what they would be able to take out in a $6B acquisition. We're talking like a 1:500 ratio. And they may not "need" anyone right now, but that doesn't mean they shouldn't sell at that price or that they don't have real risks to their business. There is always risk in moving forward, and in their case, I think there is a whole lot of risk. Their perceived valuation is tied up in (a) continual increases to their traffic; (b) continual dominance in the college age group; and (c) longer-term, in their creation of real earnings. Any perception that they will not deliver on any of that and the offering prices will immediately drop off that ridiculous multiple. Firms like Google may not care about their earnings, but I think other firms like Microsoft, Viacom, and Yahoo do, and if those firms fall by the wayside, the ultimate sell price is going to go way down. Of course, they could IPO too. But they should do it quickly while they are still hot.
sethjohn 19y ago
My sense is that the people in charge of Facebook are happy to take big risks with their company, and I don't see why they shouldn't. Whether the company sells now for $6 billion or tanks and sells for $600 million in a few years, they'll have a lifetime of riches. With money a less important consideration, the question becomes which would be a more interesting activity for the next decade: Building a globally powerful company that fundamentally changes how the internet game is played...or becoming idly rich? Financial risk/benefit calculations are much different for an individual than they are for a large corporation.
Goladus 19y ago
It got me thinking. After all, in 2002, tons of folks were asking the same question. Why Google, why now, when there were dozens of other search engines out there? Why google, why now(2002)? People need to search the internet. Google is far and away the cleanest, fastest, most effective, and easiest to use. It took 15 minutes of using www.google.com to reach that conclusion. Some people didn't realize how incredibly valuable the service was, but it was basically impossible to deny the superiority of the service. Recommend Google to anyone: Grandma, your little sister, your mac-using artist friend, an exchange student and watch them use it. Facebook isn't so obviously superior. It has lots of great features and is well-designed, but compared to google it's very complicated to use. Restrictions on joining networks, friend confirmation steps, javascript glitches, and tagging are all evidence of a learning curve that is simple nonexistant with google. Furthermore, many of the things that make facebook effective exclude other features. Facebook is not simply a way better version of myspace, there are pros and cons. If I had to put money on Myspace or Facebook, I'd pick Facebook, but not with the same confidence that I'd have picked google over every other search engine back in 2002.
- pg 19y ago
  You're measuring FB too much by Google criteria. Cleanness and efficiency matter more for search than for what FB does. FB's plan seems to be to own personal relationships the way Google owns finding stuff. That could be very big. Maybe bigger than search, maybe not. Who can say? But it will be important and they are the clear leader.
  - myoung8 19y ago
    I agree, although Google's goal is to create a searchable directory of the world's information, right? Are personal relationships information? I think they are represented that way online, or at least on Facebook. It's not the best comparison right now, but I think it will grow stronger with time as their services converge--barring an acquisition by Google, of course.
    - pg 19y ago
      That goal of Google's is just the vector describing their path through the same space every other tech company exists in. They can't turn it into a line. So FB doesn't have to worry if the intersection of the extensions of their and Google's vectors are far enough away from the current tip of Google's.
      - Goladus 19y ago
        I agree. Google connects people to information. Facebook connects people to people. Information, once created, doesn't change. People do.
  - Goladus 19y ago
    I don't mean to measure FB by Google criteria, that was mainly a response to what seemed to be a rather vacuous question from the article. Maybe I misunderstood, but people asking "why Google, why now?" in 2002 probably didn't use the internet at all or had a vested interest in some other search engine. I can believe social networking technology will be huge, but I think enough human relationship aspects are mutually exclusive that it will be far more difficult for one service to completely dominate. "Why Facebook, why now?" is a much more interesting question than "Why Google, why now?"
AF 19y ago
It is just a joke that Facebook could be valued at $6 billion. An absolute joke. FB has 30 million users, and that's not considering potential duplicates. The number of active users may be even smaller than that, and some people like I only log on once a week or so. If FB gets sold for $6 billion, that means the new owning company would need to make $500 million a year for 12 years(!) to break even. Frankly, the Internet will probably be drastically different a decade from now. FB doesn't even make $50 million a year, who in their right mind thinks that they will all of a sudden make a profit off Facebook by spending that much money? I swear some of these big companies just like throwing money at things. Yes, the dot-com bubble is here once again.
- mynameishere 19y ago
  Well, it's only about twice electronic arts' valuation: http://finance.yahoo.com/q?s=ERTS http://finance.yahoo.com/q?s=ERTS ...but consider the fact that facebook's awesome abilities include showing pictures on a webpage. No WAY anyone is going to crack through that entry barrier.
  - mynameishere 19y ago
    oops. I mean half. What happened to the edit button?

9 points by aston 19y ago

Does anybody else think this logic is crazy? I believe Facebook's two major financing rounds were for $13M and $25M (see http://www.startup-review.com/blog/facebook-case-study-offline-behavior-drives-online-usage.php http://www.startup-review.com/blog/facebook-case-study-offli...). Given those numbers, they couldn't have taken that much money out compared to what they would be able to take out in a $6B acquisition. We're talking like a 1:500 ratio. And they may not "need" anyone right now, but that doesn't mean they shouldn't sell at that price or that they don't have real risks to their business. There is always risk in moving forward, and in their case, I think there is a whole lot of risk. Their perceived valuation is tied up in (a) continual increases to their traffic; (b) continual dominance in the college age group; and (c) longer-term, in their creation of real earnings. Any perception that they will not deliver on any of that and the offering prices will immediately drop off that ridiculous multiple. Firms like Google may not care about their earnings, but I think other firms like Microsoft, Viacom, and Yahoo do, and if those firms fall by the wayside, the ultimate sell price is going to go way down. Of course, they could IPO too. But they should do it quickly while they are still hot.

sethjohn 19y ago

My sense is that the people in charge of Facebook are happy to take big risks with their company, and I don't see why they shouldn't. Whether the company sells now for $6 billion or tanks and sells for $600 million in a few years, they'll have a lifetime of riches. With money a less important consideration, the question becomes which would be a more interesting activity for the next decade: Building a globally powerful company that fundamentally changes how the internet game is played...or becoming idly rich? Financial risk/benefit calculations are much different for an individual than they are for a large corporation.

Goladus 19y ago

It got me thinking. After all, in 2002, tons of folks were asking the same question. Why Google, why now, when there were dozens of other search engines out there? Why google, why now(2002)? People need to search the internet. Google is far and away the cleanest, fastest, most effective, and easiest to use. It took 15 minutes of using www.google.com to reach that conclusion. Some people didn't realize how incredibly valuable the service was, but it was basically impossible to deny the superiority of the service. Recommend Google to anyone: Grandma, your little sister, your mac-using artist friend, an exchange student and watch them use it. Facebook isn't so obviously superior. It has lots of great features and is well-designed, but compared to google it's very complicated to use. Restrictions on joining networks, friend confirmation steps, javascript glitches, and tagging are all evidence of a learning curve that is simple nonexistant with google. Furthermore, many of the things that make facebook effective exclude other features. Facebook is not simply a way better version of myspace, there are pros and cons. If I had to put money on Myspace or Facebook, I'd pick Facebook, but not with the same confidence that I'd have picked google over every other search engine back in 2002.

pg 19y ago
You're measuring FB too much by Google criteria. Cleanness and efficiency matter more for search than for what FB does. FB's plan seems to be to own personal relationships the way Google owns finding stuff. That could be very big. Maybe bigger than search, maybe not. Who can say? But it will be important and they are the clear leader.
- myoung8 19y ago
  I agree, although Google's goal is to create a searchable directory of the world's information, right? Are personal relationships information? I think they are represented that way online, or at least on Facebook. It's not the best comparison right now, but I think it will grow stronger with time as their services converge--barring an acquisition by Google, of course.
  - pg 19y ago
    That goal of Google's is just the vector describing their path through the same space every other tech company exists in. They can't turn it into a line. So FB doesn't have to worry if the intersection of the extensions of their and Google's vectors are far enough away from the current tip of Google's.
    - Goladus 19y ago
      I agree. Google connects people to information. Facebook connects people to people. Information, once created, doesn't change. People do.
- Goladus 19y ago
  I don't mean to measure FB by Google criteria, that was mainly a response to what seemed to be a rather vacuous question from the article. Maybe I misunderstood, but people asking "why Google, why now?" in 2002 probably didn't use the internet at all or had a vested interest in some other search engine. I can believe social networking technology will be huge, but I think enough human relationship aspects are mutually exclusive that it will be far more difficult for one service to completely dominate. "Why Facebook, why now?" is a much more interesting question than "Why Google, why now?"

AF 19y ago

It is just a joke that Facebook could be valued at $6 billion. An absolute joke. FB has 30 million users, and that's not considering potential duplicates. The number of active users may be even smaller than that, and some people like I only log on once a week or so. If FB gets sold for $6 billion, that means the new owning company would need to make $500 million a year for 12 years(!) to break even. Frankly, the Internet will probably be drastically different a decade from now. FB doesn't even make $50 million a year, who in their right mind thinks that they will all of a sudden make a profit off Facebook by spending that much money? I swear some of these big companies just like throwing money at things. Yes, the dot-com bubble is here once again.

mynameishere 19y ago
Well, it's only about twice electronic arts' valuation: http://finance.yahoo.com/q?s=ERTS http://finance.yahoo.com/q?s=ERTS ...but consider the fact that facebook's awesome abilities include showing pictures on a webpage. No WAY anyone is going to crack through that entry barrier.
- mynameishere 19y ago
  oops. I mean half. What happened to the edit button?