At the Social Graphing conference on Tuesday our industry went in full-blown madness. A panel filled with Facebook fans (and some investors) got so worked up they claimed--among other things--that:
Now, to be sure, Facebook is a great product. In fact Facebook is the best social networking product ever made in my estimation. It has the best design, best UI, and best platform. Their team has done the best job to date--better than MySpace in fact. That's just an objective fact, and I don't think anyone in the industry could disagree with that.
They have done something very clever by opening up their application platform. At best, opening up their platform will be the creation of a new ecosystem for developers to leverage Facebook's social graph. At worst, Facebook's open application platform will be a way for Facebook to boost their traffic numbers and get a free R&D lab in the form of naive developers who will see their hard work incorporated into Facebook's default feature set over time.
The truth is probably somewhere in the middle.
However, back to the ABSURD claims on this panel and my thoughts on them (and yes, I realize I'm shooting two-week old dead fish in a barrel filled with six inches of water):
1. Facebook worth $100B.
First, a growing company with ~$100M in revenue this year might be worth 10-20x top line revenue in a hot market like this, or $1-2B. A company with $25M in profits (if Facebook has that) would be worth 50-100x that in a red-hot market, or $2.5-$5B. Those number are the number we heard folks were willing to pay over the last two years (i.e. Yahoo). So, to say Facebook is worth $100B is to say that Facebook is worth... wait for it.... 1,000x top-line revenue. In other words if Google makes $14B this year in top line they would be worth--according to the 1,000x revenue metric--$14 trillion (I've check my math 10x... I think that's the number).
I think you get the point... here's a graph:
Facebook had 30M uniques in September. Let's take a look at the value of each of these are the various valuation metrics. I think you get the point... Facebook users at the top end of this market would exceed the value of even cable subscribers who are paying a fortune to monopolistic companies with absurd margins.
2. Facebook will crush Google.
Yes, Facebook with no experience in the search business or pay-per-click advertising business will come in and crush Google despite the fact that MSN, Ask, and Yahoo have not been able to even *keep up* with Google. Facebook, with no experience in search, will just leap frog everyone with tens of thousands of brains working on the search problem. They will also do this while crushing MySpace. Sure they will. They will also move into autos since young people buy autos and they have young people eyeballs and attention. Look for a Facebook airline and cable channel soon as well. This is bubble talk at its best... oh wait, two more points to go!
3. Facebook will crush MySpace.
Facebook traffic is down 10% from August to September (33M uniques dropped to 30M uniques according to Comscore). MySpace was flat during that period with 68M uniques each month, or double Facebook's traffic. While Facebook is clearly a better product and a better platform, doubling your uniques is NOT an easy task. Additionally, people were speculalting that Facebook would have a major boost in September when people came back, but in fact it was the opposite (at least according to Comscore). I've heard some inside information on focus groups that were done by a VERY credible source outside of Facebook that found that students coming back found the applications to be annoying--the equivalent of spam.
We in the technology industry have a bias towards bells and whistles, but the truth is the public may not in fact like all these new applications. These applications might be a LIABILITY to Facebook. I know that's hard for some folks to swallow, but it is a possibility. Clearly some applications have great value (top friends, photo slide shows, and casual games), but many are just annoying and stupid (Zombie, food fights, etc). Facebook's challenge will be to throttle the bad and feature the good. This of course dovetails with the "should you trust Facebook with your business" discussion. In order for Facebook to catch up to MySpace--and they have a long way to go--they are going to have to control applications. So, if your application is good for you, but looked at as bad for Facebook guess who wins? Facebook of course.
Additionally, MySpace is going to announce some big changes in their partnerships with 3rd party applications developers very soon (yes, again, I have inside info). My gut tells me that MySpace will allow folks to run advertising on MySpace pages if they are approved (this I don't have inside information on). If MySpace does this then application developers should flock to MySpace's 2x user base over Facebook the same way developers flock to Windows of Mac.
MySpace has stagnated over the past year or so in terms of product, and their focus on community over platform is a long-term issue. However, counting out an incumbent with 2x the traffic is a dangerous call to make.
4. Facebook is more important than the GUI.
Facebook has connected their social network with a semi-open platform. This is neat, but it will NOT have anywhere near the impact of the Graphical user interface. Windows and the Mac made computing--the very idea of having a computer--mainstream. How can we compare the mainstreaming of computing to an application development platform that is not very powerful (by design) and not very open (by design) to the GUI?!?! That's just absurd. If you're going to make that claim then you can make the claim that the mainstreaming of the Internet is as important as Facebook applications (i.e. if the GUI is equal to the Internet, and the GUI equal to Facebook then Facebook is equal to the Internet... I don't think so).
5. Top Facebook Applications are worth $500M.
I don't even know how to start addressing this one... I mean, this is straight up MLM thinking: If Facebook is worth $50-100B than the top applications are worth 1% of that. Sure... and the top users on the top Facebook applications are worth 1% of that, or $5M each! Also, the fans of those top users are worth 1% of that, or $50,000 each!
All this being said Facebook is an AMAZING product. It is a better product offering than MySpace today, and it is obviously the best social networking system and management team in the business. If anything, the amazing team they have is the real value. Will Facebook be one of the ten most important internet brands over the next ten years? I think that's clear, but remember PointCast, Netscape, AltaVista, GNN, Lycos, Excite, and Geocities were also in the 10 most important companies in the Internet space for many years--and they went away.
NOTHING is a sure bet in this industry. In fact, social network is NOT a huge business today. MySpace with 2x the user base is still figuring out how to make money. Social networking might be the message board, chat room, and IM of Web 2.0: lots of traffic, little revenue.
As an industry we should NOT make absurd claims about companies as it does a disservice to the entire industry and the company itself. Facebook is really worth 2-5B right now, and maybe 5-10B if someone is desperate to make a move (i.e. Microsoft in terms of advertising), but let's not make ourselves look silly as an industry to say Facebook wins everything before they have.
Facebook worth a $100B might be the AOL/TW merger of Bubble 2.0 in terms of a milestone for the industry.
In fact, that gives me an idea... why doesn't Facebook just buy TimeWarner and settle this whole thing. :-)
- a) Facebook was worth $100 billion dollars
- b) Facebook would crush Google
- c) Facebook would crush MySpace
- d) Facebook application platform is as important an innovation as the graphical user interface
- e) The top Facebook applications were worth $500M
Now, to be sure, Facebook is a great product. In fact Facebook is the best social networking product ever made in my estimation. It has the best design, best UI, and best platform. Their team has done the best job to date--better than MySpace in fact. That's just an objective fact, and I don't think anyone in the industry could disagree with that.
They have done something very clever by opening up their application platform. At best, opening up their platform will be the creation of a new ecosystem for developers to leverage Facebook's social graph. At worst, Facebook's open application platform will be a way for Facebook to boost their traffic numbers and get a free R&D lab in the form of naive developers who will see their hard work incorporated into Facebook's default feature set over time.
The truth is probably somewhere in the middle.
However, back to the ABSURD claims on this panel and my thoughts on them (and yes, I realize I'm shooting two-week old dead fish in a barrel filled with six inches of water):
1. Facebook worth $100B.
First, a growing company with ~$100M in revenue this year might be worth 10-20x top line revenue in a hot market like this, or $1-2B. A company with $25M in profits (if Facebook has that) would be worth 50-100x that in a red-hot market, or $2.5-$5B. Those number are the number we heard folks were willing to pay over the last two years (i.e. Yahoo). So, to say Facebook is worth $100B is to say that Facebook is worth... wait for it.... 1,000x top-line revenue. In other words if Google makes $14B this year in top line they would be worth--according to the 1,000x revenue metric--$14 trillion (I've check my math 10x... I think that's the number).
I think you get the point... here's a graph:
Facebook had 30M uniques in September. Let's take a look at the value of each of these are the various valuation metrics. I think you get the point... Facebook users at the top end of this market would exceed the value of even cable subscribers who are paying a fortune to monopolistic companies with absurd margins.
2. Facebook will crush Google.
Yes, Facebook with no experience in the search business or pay-per-click advertising business will come in and crush Google despite the fact that MSN, Ask, and Yahoo have not been able to even *keep up* with Google. Facebook, with no experience in search, will just leap frog everyone with tens of thousands of brains working on the search problem. They will also do this while crushing MySpace. Sure they will. They will also move into autos since young people buy autos and they have young people eyeballs and attention. Look for a Facebook airline and cable channel soon as well. This is bubble talk at its best... oh wait, two more points to go!
3. Facebook will crush MySpace.
Facebook traffic is down 10% from August to September (33M uniques dropped to 30M uniques according to Comscore). MySpace was flat during that period with 68M uniques each month, or double Facebook's traffic. While Facebook is clearly a better product and a better platform, doubling your uniques is NOT an easy task. Additionally, people were speculalting that Facebook would have a major boost in September when people came back, but in fact it was the opposite (at least according to Comscore). I've heard some inside information on focus groups that were done by a VERY credible source outside of Facebook that found that students coming back found the applications to be annoying--the equivalent of spam.
We in the technology industry have a bias towards bells and whistles, but the truth is the public may not in fact like all these new applications. These applications might be a LIABILITY to Facebook. I know that's hard for some folks to swallow, but it is a possibility. Clearly some applications have great value (top friends, photo slide shows, and casual games), but many are just annoying and stupid (Zombie, food fights, etc). Facebook's challenge will be to throttle the bad and feature the good. This of course dovetails with the "should you trust Facebook with your business" discussion. In order for Facebook to catch up to MySpace--and they have a long way to go--they are going to have to control applications. So, if your application is good for you, but looked at as bad for Facebook guess who wins? Facebook of course.
Additionally, MySpace is going to announce some big changes in their partnerships with 3rd party applications developers very soon (yes, again, I have inside info). My gut tells me that MySpace will allow folks to run advertising on MySpace pages if they are approved (this I don't have inside information on). If MySpace does this then application developers should flock to MySpace's 2x user base over Facebook the same way developers flock to Windows of Mac.
MySpace has stagnated over the past year or so in terms of product, and their focus on community over platform is a long-term issue. However, counting out an incumbent with 2x the traffic is a dangerous call to make.
4. Facebook is more important than the GUI.
Facebook has connected their social network with a semi-open platform. This is neat, but it will NOT have anywhere near the impact of the Graphical user interface. Windows and the Mac made computing--the very idea of having a computer--mainstream. How can we compare the mainstreaming of computing to an application development platform that is not very powerful (by design) and not very open (by design) to the GUI?!?! That's just absurd. If you're going to make that claim then you can make the claim that the mainstreaming of the Internet is as important as Facebook applications (i.e. if the GUI is equal to the Internet, and the GUI equal to Facebook then Facebook is equal to the Internet... I don't think so).
5. Top Facebook Applications are worth $500M.
I don't even know how to start addressing this one... I mean, this is straight up MLM thinking: If Facebook is worth $50-100B than the top applications are worth 1% of that. Sure... and the top users on the top Facebook applications are worth 1% of that, or $5M each! Also, the fans of those top users are worth 1% of that, or $50,000 each!
All this being said Facebook is an AMAZING product. It is a better product offering than MySpace today, and it is obviously the best social networking system and management team in the business. If anything, the amazing team they have is the real value. Will Facebook be one of the ten most important internet brands over the next ten years? I think that's clear, but remember PointCast, Netscape, AltaVista, GNN, Lycos, Excite, and Geocities were also in the 10 most important companies in the Internet space for many years--and they went away.
NOTHING is a sure bet in this industry. In fact, social network is NOT a huge business today. MySpace with 2x the user base is still figuring out how to make money. Social networking might be the message board, chat room, and IM of Web 2.0: lots of traffic, little revenue.
As an industry we should NOT make absurd claims about companies as it does a disservice to the entire industry and the company itself. Facebook is really worth 2-5B right now, and maybe 5-10B if someone is desperate to make a move (i.e. Microsoft in terms of advertising), but let's not make ourselves look silly as an industry to say Facebook wins everything before they have.
Facebook worth a $100B might be the AOL/TW merger of Bubble 2.0 in terms of a milestone for the industry.
In fact, that gives me an idea... why doesn't Facebook just buy TimeWarner and settle this whole thing. :-)
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