Parks Associates Blog

Thursday, October 25, 2007

So by next year, Facebook will be worth $225 billion right?

Let me start by making some comparisons.

About a year ago, Yahoo! was rumored to have offered $1 billion for Facebook. The current deal with Microsoft places the company’s value at $15 billion which means Facebook's value has increased by 1500% over the past 12 months. Assuming that the next 12 months are just as good, Facebook should be worth a cool $225 billion.

Or consider this, dusting off my high school algebra skills, Facebook is now roughly worth:

6x as much as Skype (when Ebay purchased it)
9x as much as YouTube (when Google purchased it)
26x as much as MySpace (when News Corp. purchased it)

Jokes aside nobody, not even Microsoft, seriously believes Facebook is worth $15 billion. The Redmond giant's willingness to pay $240 million for tiny sliver of the company (1.6%) testifies to two facts: 1) Microsoft has enough cash-on-hand ($23 billion) that a little Halloween splurge is no big deal and; 2) Microsoft executives turn white as a sheet thinking about Google trick-or-treating in their neighborhood.

I could recount the challenges of weaving advertising into social media or MySpace & YouTube's struggles with profitability but really, why bother. We all know that the only get-rich-quick play in social networking is to start a company and sell it to someone a lot wealthier that you are.

Turning MySpace, YouTube, Facebook, or any of these others sites into a hugely profitable venture is going to be a long, painful process. The real insight revealed by the deal has little to do with online advertising or really even "Web 2.0". No, a willingness to pay so much for so little can only be explained by a desire to prevent Google from expanding its reach at all costs. It certainly looks like panic fire from the outside and I suspect, time will prove it so.

So here's wishing Mr. Zuckerberg & Facebook a Happy Halloween. They successfully trick-or-treated Microsoft by using fear and being at the right place at the right time. Like all those 3rd world dictators that weaseled billions out of the U.S. and U.S.S.R. during the Cold War, their day in the sun will pass. The war between Google & Microsoft will eventually end and with it, the insane competition for 'strategic' yet scarcely profitable start-ups. That is at least until a new war begins between another set of companies looking to out maneuver each other on the battlefield of business.


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