A few days ago there was a lot of chatter over Business Week story that Facebook was on the block, as long as the buyer was ready to pony up $2 billion.
I suggested that the founders of the company should have been prudent and taken the rumored $750 million offer. My argument was that since their traffic was starting to dip, why not follow the philosophy – a bird in hand is worth two in the bush. It was no reflection of the possibilities of the network, or how much money the network could make in the future. Hell if I didn’t think they had a good thing going, I would have never written about them in the first place.
It was just looking at the Alexa traffic rankings. Michael Arrington and Matt Marshall, both took issue with me for using the Alexa Stats, because they thought Alexa stats were unreliable. Fair point, though I see people quote Alexa stats all the time. Nevertheless, I thought, well since they are arguing against the Alexa data, why not use a more reliable data, such as Comscore/Media Metrix. After all that was the information used by Business Week. (Matt should have also linked to this comment in order to complete the picture, but never mind.)
So what did the Comscore/MediaMetrix data reveal? From December 2005 to February 2005, MySpace added 5 million unique visitors while, Facebook’s unique visitors declines by about 2 million – or about 16%. And this is before spring break or March Madness. Ironically the data dovetails with the trends on Alexa as well. And given that I am lowly journalist with little check-cutting experience, the $2 billion price tag seemed crazy to man known to cut big checks.
Ross Levinsohn, the bought MySpace for News Corp told a gathering of investment bankers in NY: “We’re certainly not paying $2 billion for Facebook. If the price was right I’d be interested in it. It’s a great site and I know the guys there well.” Anyway Paul Kedrosky says it well, when he so pithily writes, “If paying four times as much for a smaller, slower-growing site whose main users leave in lock-step graduating cohorts every year isn’t mad, then I have no idea any more what is.” Meanwhile, I have heard from the sources, what Business Logs, had reported earlier his week: Facebook in a month or so will open its network to non-college students, and Linked-In type features.
As an (outgoing) college student, it might help to shed a little insight — and ramblings — here on things Facebook does already and its value.
First, Facebook already is open to non-college students. It opened a high school version of Facebook a few months ago. Apparently, it’s fairly popular (though, of course, not as popular as MySpace).
They also now provide ways for graduating students to stay on and connect with others. They call this “Geography” and “Network.” Basically, instead of being associated and grouped by school, you end up being also associated by Geography (where you live). This allows you to connect with others close to where you live. It’s a pretty light feature, as it stands now, but I expect it to become more fully-rounded with some time.
Personally, I don’t think Facebook is worth $2b at its current state. But, I think it’s worth a lot. I think Jason Calacanis is right when he talks about traditional advertising not working for social networks — I’ve pretty much never once clicked or looked at an ad on Facebook. You fairly quickly train yourself to know where they are and not click on them. But, I think, the potential for other opportunities — “creative advertising” — is pretty large. They certainly have a huge amount of market research which would be valuable to scores of large companies. They already compile this info into what they call the “Pulse.” The Pulse is a page on Facebook where you can see (overall or broken down by school) where you can see the most popular Music, Books, TV shows, Clubs, Hometowns, etc. You can also track them through time.
I’d also love to see Facebook really attempt to change the archaic college job hunting task. Incorporate a couple LinkedIn features, but also find new ways of using all that data to help students move to the next era in their life.
I think it’s worth noting that although the ratings say Facebook is falling, at least here at UChicago, it’s not. We were one of the first 15 schools to be added, and its popularity hasn’t declined. There maybe less people addicted to it now, but that’s a good thing, I think. Whereas many students used to spend hours just browsing page after page after page, now a lot of them are using it as a legitimate tool (“who else is in this class?”, “what is john’s phone number?”, etc) rather than a time waster. I think it’s also worth noting that when it was last reported on the Facebook homepage, they said that Facebook Photos (where you can upload and tag photos) receives over 1.5 million new photos per day. What’s Flickr at?
Anyway, that’s all just me rambling from a college student’s perspective — something I haven’t really seen yet since this $2b valuation started.
Ian
I once advertised for a client on Facebook, the response was very, very poor. I’m talking disastrous, and with poor follow-up from their salespeople. Myspace delivers far better click-throughs, even though those are low as well. However Facebook is a young, undeveloped business and there is no doubt they have many users that marketers would love to get ahold of. The question is how.
As for marketing information provided by users, that will be tricky to do. I’m sure the exisiting purveyors of market research would like to get their hands on it, but that’s not going to be a major profit center, esp. if we’re talking about valuations higher then $500m
Another problem– if they open the service up to anyone, does it lose its college-based appeal? Do students at the top 500 schools want MySpacers descending on their clean and unspoiled closed social network? Will a competitor that only focuses on major universities (for more exclusivity) be able to suck away their most highly-paid and presumably desirable users?
For the ads were they banners or facebook announcements? I was interested in advertising on Facebook, but if the results are poor then I won’t be.
“Meanwhile, I have heard from the sources, what Business Logs, had reported earlier his week: Facebook in a month or so will open its network to non-college students, and Linked-In type features.”
If and when that happens, watch the college kids flee to the new services that are sure to pop up and be available exclusively to college kids. If college students wanted to mix it up with everyone, they’d be on MySpace.
“Another problem– if they open the service up to anyone, does it lose its college-based appeal? Do students at the top 500 schools want MySpacers descending on their clean and unspoiled closed social network? Will a competitor that only focuses on major universities (for more exclusivity) be able to suck away their most highly-paid and presumably desirable users?”
Since it’s already open to high school students, I can safely say it doesn’t affect college students at all. They’ve always done a really good job of segregating users effectively. I still am contained within my school, with friends at other schools. I don’t see high school students and quite frankly, if they didn’t tell me they launched it, I wouldn’t have known.
In my opinion, this segregation is a core reason Facebook succeeded in the beginning. They started only at Harvard, then slowly rolled out to a few more schools… Then the Ivy’s and NYU… Then a a few more schools, including UChicago… etc.
But you never felt too overwhelmed with the new schools. Mainly because most of the features are constrained to a single school.
If they follow the paths they took historically, I believe people won’t leave Facebook because of other types of users. (All else being equal, of course.)
Ian
Michael, i tried “facebook annonucements” for selling stuff very relevent to that demographic (free ringtones etc) but the results are not good, even a third tier PPC engine deliver better results.
Said all this i still believe Facebook can make a killing with some creative form of advertising for high end products relevent to college students (like say student loans)…
If Facebook tries to go the direction of LinkedIn then that would be a very bad move. LinkedIn hasn’t really caught on, not because it has bad technology, but because it has bad social dynamics. If Facebook tries to copy LinkedIn’s social dynamics then it will only weaken Facebook.
My 19 year old daughter who is in college tells me that Facebook “sucks”. Evidently you have to be invited in to join Facebook, or at least that was the case last time she visited their site.
She’s taken me on a tour of several MySpace sites and they look pretty cool. I can see why MySpace is so popular.
Facebook seems to have the hype pump set to high. Sounds like $20 million would be more in line with their true value.
I find it interesting that no one seems to be paying much attention to what Ian Sefferman has said (twice), which comes from someone a lot closer to the situation from a user’s standpoint than anyone else either in the comments or on many of the posts I’ve read — including Om’s. I think that’s worth at least as much as a lot of wanking about Alexa or comScore rankings, no offense. Not to say that Paul Kedrosky isn’t right, and not to say that $2-billion isn’t a ridiculous price. Just saying.
Mathew I am in agreement with you and Ian entirely. I think Ian makes all good points.
I am just saying $2 billion seems silly, and dismissing Alexa data is not prudent. Hell, all i suggested these guys take 3/4 of a billion and go enjoy life, come back and do it again. there is no such thing as a sure thing.
The big question is what is their monization per unique visitor?
My site monitizes well over 10x more per pageview then myspace. The real question is what is facebook monitizating at? They must be making at least 3-5 times as much per pageview as myspace, mostly due to the fact their demographic actually has credit cards.
Off the immediate subject but we’ve found Alexa to have no correlation to actual site traffic and have stopped tracking it. Has anyone actually verified this $750 million offer they turned down?
The problem as I see it is that these sites are too easy to put together and they build no long term brand loyalty like Apple or Google. Their market is fickle and quick to change direction. Google’s valuation was all about brand equity and these sites are not particularly good at creating same…think out two or three years- will anyone remember why these sites were so valuable?
I agree with you, Om — if they did get that $750-million offer, they should have taken it and run as far in the other direction as possible. On the other hand, they may have “advisors” telling them otherwise, in which case they have my sympathies 🙂
Good point by Martin, will facebook be remembered after 2 or 3 years, not likely, the Gen-Y is always looking to associating with the next upcoming brand, it is always difficult to keep pace with their likes and dislikes for existing brands.
To keep both, Om and Mathew happy, they can settle at an inbetween amount of $1.25 billion.
The problem with your graph is that during the majority of that period, December and January most schools are either on break or in the middle of finals. Those two things I know seriously impacts whether students will go on facebook or not. Of course they are going to loose traffic when students are at home not hanging out with each other or studying for their tests.
“Facebook in a month or so will open its network to non-college students…”
Already done with the high school students… and Facebook lost some “street cred” for that.
They have to be careful, though. Facebook was built on the “we can be members of this, and you can’t” mentality. If it loses it’s “elite” nature… it loses value.
(slightly OT, just responding to a comment)
Alex – I don’t know the Alexa stats on LinkedIn, but for those of us who are on it and have effectively built out our networks … there is a high probability that we will find our next gigs trough the service.
I’m employed now at a new position that is 100x better than my old one, and LinkedIn was a pretty important part of landing the position.
I thought the point of LinkedIn and Tribe.net was leveraging your social nets for finding jobs, used couches, etc. I could see Facebook pulling off something like this w/ the post-graduation crowd.
Most people I know who graduate from college have about 25-50 random acquaintances that you are friendly with, but not quite tight enough to email out of the blue 4 years after graudation and say “know anyone who’s hiring? =)”. But if they are already on your Facebook, it wouldn’t be as big of a deal.
Check this out… A very, very interesting article on all this stuff that you guys are discussing…
Bubble 2.0: Facebook, MySpace, Desperate Dinosaurs, Web 2.0 buzz machines, and gazillion other startups
http://www.neomarketing.tv/archives/bubble20partifacebookmyspacedesperatedinosaursweb20buzzmachinesandgazillionother_startups.php
The guy is talking about the dynamics of the “Bubble 2.0”. So a lot of discussion revolving around Web 2.0, what is hype, what is real, why the entry barriers to the social media space are very minimal, and how a popular service can quickly lose its “cool”… And all that…
I can’t say that I’m very knowledgeable about these stuff, but his discussion was quite intuitive, and definately worth to check out…
Facebook is in the midst of a bidding war between Microsoft and Google. The first of many large scale “battles”. $2 bil is a drop in the bucket for both companies right now.
Some very interesting points have been brought up. I strongly agree with what Ian has mentioned. I am a sophomore at The University of Pennsylvania, also one of the first schools to be added to Facebook. Facebook has certainly not lost its griphold on our school. Just looking at a few random thoughts as to why it continues to gain brainshare here, one of the big reasons is its continued exclusitive feel. I know of several seniors at Penn who stopped using Facebook once Penn State was added (as funny as that sounds). But to others, like Ian has mentioned, Facebook has done a tremendous job of keeping schools and users segregated. This can be as simple as not being able to view the profile of someone at another school. Several students I know, for instance, have refused to use MySpace or even Friendster, for fear that their parents would see their profile. This is obviously not a concern if using Facebook.
Another key reason is the manufactured goal of nearly every user to accumulate friends at not only their own school but at others. This is why, at least in my mind, sites like Friendster and even Facebook’s high school won’t reach the same level as college-based Facebook. When a student leaves highschool and enters into college, more often than not the student’s classmates disperse to a wide variety of other schools. The student then seeks to “collect” as many friends from other schools as possible, using their friend/school list as almost a trophy wall and expanding Facebook’s reach. When you look at high school Facebook, and even sites like Friendster, they don’t have this affect and often become stagnant, failing to spread from each social bubble to the next. For instance, in highschool, the large majority, if not all of a student’s friends are primarily only at their own high school. This stops the networking chain at that one school. A classic “skim” marketing approach and not-so-obvious strategy Facebook inadvertently or advertently used was also adding schools in a sequential fashion, as opposed to dumping them all into the system at once. I remember talking to several friends at schools not supported by Facebook at the time, and every single one had heard of Facebook and was dying to be a part of the site. This gave Facebook great momentum at these newly added schools.
I personally can’t wait to see how Facebook attemps to retain its graduating users. I see this as one of the primary ways Facebook can monetize its users. As many have brought up, while it just seems so lucrative, the college Facebook just doesn’t have the revenue-generating opportunies as one would hope, at least not yet. A point to make is that when a user visits Facebook, they come to stay at Facebook. Whether they are “stalking”/browsing, looking up classmates in classes, etc… they come to Facebook to stay there. Like Om mentioned, they train themselves to avoid any distractions (ads) to this process. I don’t think this can be changed anytime soon. This explains the extremely low results/responses in advertising on Facebook. When people visit sites like CollegeHumor.com, on the other hand, people are almost looking to find something else. They go to the site to find something funny or interesting, which may or may not be at the site they first went to, even if it means clicking on an advertisement.
In respects to the alumni offerings, Facebook has the advantage of a “recycling” userbase, with a large near-guaranteed group of new-users every year, without doubt (unless they are dethroned obviously). If they can maintain their current course, they can feed their LinkedIn-like alumni services and job hunting systems new users every year.
Sorry for the long comment! Just wanted to get everything down at once!
The advertising response on facebook is really lousy. I tried running all kinds of ads on there – directly targeted at the college market with all sorts of strategies and not one ad received very good response. We are talking 30-40 clicks per day running over 300,000 impressions. If these kids are not interested in buying cheaper books around the start of a new semester, what the heck kind of products are they going to buy into?
I’m a student at Cornell University, another of the first schools to be on facebook. Almost everyone I know both at Cornell and at other schools are on Facebook and use it fairly frequently. But I can understand how it would not be particularly lucrative for advertising. People don’t go on Facebook to shop. Myspace has an extremely different audience, which I might overgeneralize as more “gullible.”
But what really inspired me to post here so long after the article was written was the graph. The graph is completely meaningless, and Om, you should be ashamed for posting it. Facebook is primarily used by college students. Who gain access with an official school email address. Therefore students join Facebook when they get an email address: between May and July usually. More join as the school year approaches and they hear more about Facebook. Up at school, they discover it’s a useful tool for remembering people they meet, and the number of frequent users goes up. By December, everyone knows about Facebook and either has already joined, or will not join, therefore a peak as reached. People become less interested as the year drags on, they check less frequently, and the unique hits decrease. MySpace on the other hand would have a more constant growth as the graph showed. But saying Facebook isn’t increasing in size by showing November through February is just, well, stupid.
I think some dating sites have lost traffic, but thats because customers are moving to other niche dating sites. The recession definitely has not hit paid dating sites and I suspect that sites which rely on advertising will suffer more than sites which rely on subscription revenue. Eg: