10/24/2007

A $15 Billion Bubble? You Decide...

With Microsoft (MSFT) buying a very minority share that values Facebook at $15 billion, it looks like "bubble or bust".

A lot depends on whether you believe Facebook is just the latest online fad—or whether the social network is building the next, great computing "Thing".

Facebook, which is closing in on 50 million members, theoretically promises to restore control to social networking—over privacy, unwanted email, and virtual contact— back to the user.

If you divide the estimated valuation ($15 Billion) by the number of users that means each Facebook user is potentially monetized at about $300. Obviously, users aren't being monetized at that level now. I'm a Facebook user, and while it was kinda cool at first, seeing people that I know who have joined, and being invited to be "a friend" of some people that I respect or like, I already find that the bloom is off the face, if you will - and I really don't visit much at all anymore.

So, how does Facebook/Microsoft make money? Advertising, obviously. When Mark Zuckerberg talks about "social ads", I have a funny feeling that I am not gonna be there to click. It might be innovative, it might be the "next big thing" - but my guess is that if many users, like me, arent' really compelled to visit regularly, guess what? There isn't gonna be anybody to look at the ads, period. Not only that, but these social networking sites are quite transient. One day, probably soon, some young innovator is going to come up with something better (they're probably coding their asses off on it as I write) and Facebook (like MySpace) will start to really become passe.

Frankly, I'm getting the idea that Facebook friends are to remind you how many friends you might actually have if you were to spend time with real people in the real world.

So whether Facebook is worth $15 billion really depends on whether it can figure out a way to spin new kinds of online ads that work a lot better than anything we’ve seen before. My bet is: don't hold your breath. There is a broader concept at work here, as alluded to by an astute commenter below.

Déjà Vu all over again, a-la 2000? At least, NASDAQ isn't at 5,000...