Is Facebook Worth $15 Billion?
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Written By Sepideh Saremi | September 25, 2007 | Share This
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Today’s Wall Street Journal reports that software giant Microsoft wants to buy a stake in Facebook before Google does. It’s no big surprise that these two giants are both interested and racing to get their own slice of the Facebook pie. What’s truly surprising, though, is that the Facebook valuation mentioned in the WSJ article is $10 billion, and the same article reports that the social network “has aspirations of competing with Google and Microsoft on its own, and has indicated that it might hold out for a higher valuation than Microsoft is willing to agree on — as much as $15 billion.” Which has everyone asking the question, “Is Facebook really worth $15 billion?”
Though I personally miss the days when it was just a “social utility” for college students, all carefree “poking” and wall-writing, I’m not a college student any longer and can appreciate Facebook’s wider appeal. The open API is making some people a lot of money, and there’s infinite potential for companies to take advantage of social media marketing opportunities on the site. Notable tech people joining Facebook and talking about it has also done a lot to drive up its popularity and expand its user base beyond 18- to 24-year-olds. Users have a range of privacy settings, making Facebook feel secure (whether it actually is, is a whole other post). All these things, in addition to the fact that Facebook is not yet a minefield of annoying MIDI files and ugly profile backgrounds, make the site infinitely more valuable than MySpace, which was acquired by News Corp for a mere $580 million. So it’s understandable that Facebook’s founder, Mark Zuckerberg, had the foresight to blow off Yahoo’s $900 million offer last year.
But holding out for $15 billion just sounds insane, and Kara Swisher thinks that it’s endemic of bigger issues in Silicon Valley, writing, “I believe Silicon Valley can now be considered to be at Delusional Level Red. Or green, given all the cash that is being shoved in Facebook’s direction now.” Swisher makes four great points in that same Facebook-reality-check post, the best of them being her assertion that Facebook is no Google:
Although many in the tech sector make the comparison to the search giant, it is simply incorrect.
Is Facebook like Yahoo a bit? Certainly. A newfangled version of AOL? Absolutely! A very well done media play with all sorts of interactive bells and whistles hanging off of it? Yes, ma’am.
Indeed, it is growing its media business nicely, with $30 million in profits on $150 million in revenue.
But in comparative terms to the search giant, Facebook is a lemonade stand. Google brought in $3.9 billion in revenue in just the second quarter alone and, um, is increasing its dominance over the search sector in a mighty scary way.
Facebook, on the other hand, gets half its annual revenue right now from a sweetheart guaranteed revenue deal with, drum roll, Microsoft. No matter what either Facebook or Microsoft says, it is a money-losing deal for Microsoft so far.
How do I know this? According to many sources, Google is struggling to make ends meet in its own sweetheart guaranteed ad deal with Facebook rival MySpace, which is much larger, and Google has the best monetization engine out there.
I agree that Facebook is no Google yet and may never be, but I think considering that Microsoft is competing with Google for a stake, that really makes the question, “Is Facebook worth $15 billion to Microsoft if it means keeping Google out?” Not as catchy as the shorter version, but considering Google’s massive market share in search and its far-reaching tentacles into every other space, the answer for Microsoft should be yes. If I were Microsoft, I’d cough up whatever cash it takes to appease Zuckerberg and get that stake in Facebook before Google does.
Topics: Facebook, Google, Investment, M&A, Microsoft, Social Media |
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