Facebook, the college social networking site, and a phenom I wrote about for Business 2.0 is apparently on the block. Business Week reports that the company is looking to get close to $2 billion, and had passed on a $750 million offer. Well, I think they should have taken the $750 million. Why?
Just look at their Alexa stats for past three months. They are stagnating like my new year resolution to lose 50 pounds. Over past three months, the daily pageviews and the daily reach are range bound, and the daily traffic trends are not encouraging as well.
From what I have heard is that the company is considering opening up its network to the non-core audience, aka young people who are not in colleges etc. I think doing so would be disastrous for the company. It would become yet another social network, which would get spanked by MySpace, which is still defying the odds, staying firmly perched in the stratosphere.
51 thoughts on “Facebook: Too Late For $750 Million?”
Om – I agree with you that FB should have taken 750 Mil. I think the stats are even worse when you consider that this should be the peak time for Facebook (college students are all at college and the weather isn’t nice yet in most of the country) they haven’t hit their summer slow down yet, which is when the numbers look really bad.
But I think that they need to expand beyond the college market to reach younger kids. If they don’t when kids hit college they won’t need / want Facebook.
“Humility makes great men twice honorable”
“From what I have heard is that the company is considering opening up its network to the non-core audience, aka young people who are not in colleges etc. I think doing so would be disastrous for the company.”
Facebook is already allowing high schoolers to sign up, but I don’t think it’s as disastrous as you think. Yes, Facebook competes on some levels with MySpace, but their end games are different. Facebook is a surrogate address book while MySpace is a surrogate blog…at least that’s the way I see it.
What Facebook has that MySpace doesn’t is order. I look at MySpace and all I see is zany colors and chaos. I don’t care for it and thus I don’t use it (although will admit that I have a MySpace account). Facebook on the other hand is much more organized. I can go in, get the information I need, and get out.
Also, how many people who talk about Facebook have actually used it?
If the management at FB wanted to really keep people logged in longer (thus exposing us to more ads), they could create features such as the ability to upload resumes and interact with potential employers or roommates or a plethora of other entities. I’m dumbfounded that they haven’t and that no one else has. Plus, it is alot easier to regulate and keep unwanted visitors out of a .edu restricted domain network which creates in part a feeling of trust.
Note: as a college student that enjoys using FB on a regular basis I have become frustrated with the gradual movement towards opening the network to the non-collegiate realm. If I wanted to hang out with highschool kids I would get my mom to pick me up in her minivan and drop me off at the mall…
The fact cannot be denied, facebook owns the college market. But I do believe that facebook is rapidly losing ground to MySpace and the trend doesn’t show signs of reversing. Without getting into numbers or Alexa rankings, let’s just look at the basic concepts.
Currently facebook is enjoying being the college social networking site. But despite the occasional tech trick here or there, they have no major competitive advantages over any other social networking website. MySpace has a lock on the high school market like facebook has a lock on the college market. So in 4 years when these high school kids go to college what do you think they’re going to do? Leave their MySpace contact list and years of collected information just to switch to what is essentially a more localized version of the same thing on facebook? They’re either going to maintain two profiles or just use MySpace.
I know several people who are college age and facebook certainly isn’t as popular as it used to be. But maybe the novelty is just wearing off and people aren’t talking about it as much. Either way, I have my doubts about the initial $750M offer (much less $2B). The only reason I see for someone to make aquisition like that is so that Viacom can keep up with News Corp (aka “The Joneses”) and have a player in the Mega Online Advertising arena.
All in all, I think the sales of facebook for anything over $500M would be bad news for the whole social networking sector. Then you’re going to get 10x the number of players and 20x the number of crappy sites that give the whole thing a bad name. There’s a new socnet site launching every other day as it is…if facebook sells for a bil we’ll be drowning in the things (like tribbles, but with ajax and tags instead of fur). Not to mention that all this hype that socnet sites have been getting recently isn’t doing a lot of good for the market. I’ve seen this before…lots of hype, lots of press coverage, massively inflated valuations and then POP. I agree with you Om, facebook would be wise to get out while the getting is good.
(and isn’t their CEO like, 22? If I were this kid I would take my millions and retire to a 60 year spring break in mexico somewhere)
It may be stagnant in the middle of the school year, but you are going to get many, many, many more freshman in september. Everyone by this time has added their friends, but when new students (mainly freshman) hit the college life, the traffic will increase.
If you can’t monetize the traffic it’s worthless. In fact it’s worth than useless, it’s an expense.
Has facebook shown it can monetize their traffic?
If they stick to the core idea of limiting to college students and fresh alumni i think Facebook has better monetization potential (comparing CPM to CPM) than MySpace or any other social network!.
Opening up FB to the non college sector would be horrible in the longevity of this site. It’s main attraction is that it IS collegiate only. Demographers know EXACTLY what they are getting with this site. Sure MSpace has a larger audience, but it is not as highly targeted. They don’t have to be the next MySpace, they can be who they already are, FACEBOOK. They have thier own clones (Xuqa.com, whoever else). 2 Billion? please… His bankers are too greedy and this will become a ‘not super great’ deal for the buyer (but not totally bad either). 750 is to high too, but he should have sold.
What’s amazing is how under the radar the communityconnect sites have been even though they are have highly targeted niches (www.blackplanet.com, http://www.asianavenue.com & http://www.migente.com) MySpace is eating thier lunch and they have been around much longer.
Facebook reported a while back in a interview they were doing over a million a month in revenue. At any rate with something like 80% market pentration the room for growth is limited. Myspace is taking over their market and myyearbook as well. facebook is about to level off soon and even if it does it will still be a monster site.
I think we can all agree that traffic numbers are a direct function of marketing spend in the short run, which makes actual usage numbers cloudy, on purpose. It probably makes sense to use them for long term comparative or aggregate analysis, but looking at them in the short term can be very misleading.
Saying facebook is popular is probably an understatement, but how exactly is Media Company X going to get $750M (or $2B) back in value?
Last numbers I saw (less than a year ago) myspace was generating an average of 650 ad impressions per month per registered member. Lets assume facebook is able to hold their members’ attention longer and serve an average of 1,000 ads/member/month. Lets also assume an average $2CPM (aggressively). And most importantly, let’s assume they maintain the same average quality of users, and not just pump their user base with “zombie members” (which a lot of social networks are in the business of doing). Some quick math then shows that an average member generates $24/year in the assumed scenario. For simple comparison, at $750M, Media Company X is paying $150/member, at $2B they would be paying $400/member for facebooks current 5M members.
But that doesn’t include facebook’s potential, so to make life easier lets assume Facebook can maintain an average of 12M members (that’s 75% of the TOTAL estimated US college student population of 16.7M in 2005). With 12M members earning $2 CPM and generating 1,000 impressions per month, facebook will be able to pay their new owners back $288M in one year, $750M in less than 3 years, and $2B in less than 7 years.
Doesn’t sound completely unrealistic, especailly coming from the mouth of an investment banker. The only problem is that there is no mote or wall around facebook keeping their users in. If you’re old enough to remember back to the popular websites of 1998, it’s easy to see how users’ online usage preferences can change very dramatically.
$2 billion is a deal. A little dip in traffic is not an indicator of anything. I’m 30 y/o and on Facebook, my brother is on Facebook, and my cousins too 😉 This generation doesn’t watch TV, we have printers so we don’t need magazines or newspapers… we own the media–we are taking over!
I agree they should keep it .edu restricted. Myspace serves its purpose but as a brand it’s only as good as the content at the bottom of the heap, mostly unrestricted.
As an alumni of UF I have access to UF’s social network GNN, where I can access employment listings that you can only see if you’re going to UF or graduated from UF. IMHO that really adds to the value of my college education. But, I can’t connect with friends (and family) that went to other schools–Facebook has the lock on that.
If you browse through Facebook for just a few minutes you’ll see that most of these students know people at dozens of other universities. These are your top students, after highschool they spread out all over the place, on scholarships usually… I’d argue that anyone under 24 doesn’t really “get it” yet, it’s hard to convince my peers to sign up, but the younger generation already gets it–and they’re very sharp technically too. There’s already little mini-industries forming around these huge social-net sites, very exciting times 😉
I meant “over” 24, not under. Oops.
How much VC money is in FaceBook?
If VC’s insist on an unreasonably high price and they get nothing, can the founders sue the VC’s?
Hmmm, maybe theres an untapped hidden market here. How can we create derivatives that express the disconnect between founders/mgt and VC/boardmembers? And would this fund a “put” option for founders, if VCs blow an opportunity.
Think about how disclosure of the action in this derivative would influence the offers received.
From paid content
[by rafat] : And BW joins it…the non-story about college social networking site Facebook’s being on the block, which it has been for a while and everyone, including Viacom, has looked at it multiple times, parsed the valuation and options, and still could not think of a logical business reason for ponying up that kind of money.
What I do know, from my sources, is that Facebook closed on a “huge round” of funding last week. So I would say the acquisition part is off the table, for now. BW’s $2 billion figure is at best, hearsay, and at worst, media manipulation.
you don’t need to lose anywhere near 50 lbs my friend… with a weekend of fasting, i’m sure you’d look svelte in a new Brooks Brothers suit or a Steve Jobs black turtleneck special.
Facebook is worth $2B precisely because MySpace was bought for $580M, and then grew another 200% in the next 12 months. Every month MySpace keeps growing the price for FB goes up, unless the traffic #’s really start trending down.
(ps – resolutions are for parliaments, not the 4th estate 🙂
If they really control more than 85% of the market, I think $2B is a reasonable price.
I think that before Viacom wastes 2 billion on facebook.com they should check out this new site http://www.uspot.com I just joined. It has all of the features of myspace and facebook as well as the best photo and video sharing sites. I think once this new site starts getting more members it is going to be make people think twice about paying 2bill for Facebook… Viacom could easily take a new startup like this and drive the traffic to it with all of their MTV properties…
Check it out and see for yourself what I mean… I agree that Facebook should have taken the 750mil while they had the chance.. I am just happy that I finally have an truly worthy alternative to the facebook. Hmm..
If they really control more than 85% of the market, and they really only have a million dollars a month in revenue I think $2B is a ludicrous price.
“Lets assume Facebook can maintain an average of 12M members (that’s 75% of the TOTAL estimated US college student population of 16.7M in 2005). With 12M members earning $2 CPM and generating 1,000 impressions per month, facebook will be able to pay their new owners back $288M in one year, $750M in less than 3 years, and $2B in less than 7 years.”
hmm . . . guess they are worth $2Billion, according to your comment they’ve figured out a way to generate revenue with no costs.
payback generally refers to EARNINGS, as in after expenses (something we should have learned about in 2000-2001) . . your numbers are strictly top line assumptions. for the sake of argument say they earn 25% net income (google is at 24%), using your assumptions they will be able to payback $72M per year, that equals 10 years to pay back a $750million price, and 27 years to pay back the $2billion, and we know that by that time newbetterfacebookcompetitor.com won’t have been invented . . . I think I’ve seen this movie somewhere before.
Facebook is a great buy at 750mil, not sure about 2bil, but its really just scratching the surface of the revenue they generate per user. As far as uspot, i’m sure anyone with $10k could come along and build their own “competitor” to facebook, heck a friend of mine in canada has his own up there getin.ca but its not going to take down facebook.com anytime soon.
What would really make facebook a billion dollar company: bringing in a whole new slew of outside companies into their market. build an api. let others add services, premium ones, to their market and take cuts on each transaction.
I beg to differ. I think FaceBook has room to grow, and I’m an example of that. I’m currently at Wilfrid Laurier University in Canada, and the craze has just hit our campus. For example, my roommate is on 3 or 4 different ‘social networks’, but he finds himself checking his Facebook more than any other.
I think it’s because most University students are looking to socialize, and with campuses being so large, seeing someone you’d like to, or communicating with them is all that much harder. Sometimes phone calls and emails would be to personal of a contact, but clicking on a pic and saying add, and accepting someone you met once and would like to stay connected with, is that much easier with Facebook.
On the security side, Facebook is far better as people with university emails are the only people who can sign up. With that being at the core of the network, adds far more credibility to the users and creates more trust.
I think Facebook would lose credibility and I know I would probably stop visiting if it were open to the public.
The reason why its worth 2 Billion. Simple. The audience is educated, yes with less money, but with far more potential buying power. MySpace is loaded with 12 year olds, with no money, no buying power, and has a bit of time before they possess either. That isn’t the case with University kids.
Please don’t make the same mistake a lot people make by citing Alexa numbers. Alexa numbers are not scientific. Anyone that adds the Alexa toolbar so their visitors download it will skew their Alexa numbers.
It is much better to us comScore Mediametrix or Nielson ratings.
The latest Facebook Mediametrix numbers are staggering (over 5 billion pageviews in the USA).
It is a steal at $750 million. A rational price is a $1 billion. $2 billion is a irrational bordering on the Skype-Ebay craziness.
Facebook has so much potential just waiting to be tapped.
As a recent college grad, I can tell you that when high school kids get to college, it’s almost a given that they’ll create a facebook account. Sure they might have a MySpace but all the people they meet in college have FB accounts and so every fall, another crop of freshman will join FB (while the ones who graduate stick around as alumni, which is why FB will continue to grow). If nothing else, you can’t browse around FB without an account which alone is reason enough to sign up. FB is used to communicate everything from club events, to parties, to organizing student body elections.
Having both a MySpace and a FB account, I can vouch for the layout of FB, which looks a lot cleaner and much more user-friendly. The ads are definitely less obtrusive and there’s very little of the spam you get on MySpace. There’s less customization but as some of you with the experience of seeing some of the MySpace eyesores can attest, the lack of embedded videos, music, and html actually contributes to FB’s simple appeal.
So how can this thing make money? With products and services that tap into this age group. Think of the potential for a job search company like Monster.com if they were to buy out a social networking site targeted at college students. How about health insurance? It’s shocking how many young adults are uninsured. They often lose their coverage in or right after college, and because they’re healthy and young, they roll the dice and wait months to get coverage through their job. And a number of low-paying entry level positions and internships means the wait can be years.
Credit cards, student loans, auto loans, auto insurance, travel, textbooks, fashion and apparel, the list of commercial oppertunities can go on and on. Most of these kids know how much they’re going to be making and live a lifestyle based on future salary. Plus at that age, they’ve still got parents to fall back on.
If done right, FB has the potential to bring a huge return.
I see many of commments about monetization, and losing numbers to mysapce.
What about the correlation between education and spending power ?
Why does CPA pricing models for advertisement have a much higher price than CPC model ?
Simple better rate of conversion.
Contention being that marketers would have a higher interest in Facebook due to the correlation between spending power and education.
Its simple efficient targeting as compared to some of the larger players.
Surely one of the key areas of growth for FB is in the alumni market? Alumni are gradually making their way onto the site for Universities that have some sort of alumni e-mail address system, but slowly it would seem, certainly in the UK.
Zuckerberg and Co should have sold Facebook at 750M (if they really had an offer) because they’re young and inexperienced. No matter what they want to, go back to Harvard, start another company, chill for a while, they need to get out of Facebook before it tanks. Even if it doesn’t tank after they leave they’ll still get credit for the whole damn thing. They’re 21, what are they gonna do, run Facebook for the next ten years. I doubt it. Facebook may be here to stay for a while but there’s no reason it’s not going to disappear or be replaced by MySpace (or some other new social network that doesn’t even exist yet) in a year or two. Their target market are fickle fickle people and could move on at any moment.
Secondly, Facebook is a piece of shit. I use it all every day, it functions and is incredibly powerful and useful but ONLY because so many people are plugged into it. Probably over 90% of the students at my college are on Facebook, and thats what makes it cool is that its an online extension of a preexisting social network (aka our campus). But outside of being able to look up contact info for friends or acquaintances and “poking” your crush every feature of Facebook is dwarfed by other services.
The downside is that Facebook is incredibly difficult to navigate and usability is soooo low. Its as if Zuckerberg et al had one great idea to put online profiles together (not a new idea at all) but base it solely on college social scene (this was the innovation) and now they’re out of ideas.
Furthermore by expanding Facebook it’s loosing its appeal. At first it was just at Ivy leagues and my Ivy league friends couldn’t get enough. Then it spread to other First tier schools around the country, but by the time it hit every college and now high school there’s no longer the affluence or exclusivity that made Facebook cool, now its just seems to be a MySpace knockoff trying to edge in on their market.
The trouble is that I love the original idea, I love how users are bound (ideally though Facebook is full of bogus profiles) to their true identities. A social network with anonymity becomes a dodge world of bullshit and psychos misrepresenting themselves, but a social network based on a physical one banishing anonymity gains all the advantages of communal respect and accountability, which make the possibilities for constructive online activity within the network infinitely great.
Interesting discussion. Except for that last entry, which is absolutely ignorant.
how can you talk about people like they are fuckin products for sale? that is whats wrong with the corporatioins these days… how to gain a higher gross margin by fuckin the stupid people. im glad facebook didnt sell out to some bitch ass corporation. its unfortunate we (the blind deaf and dumb) are so retarded that we made a social network with profiles that contain every race, gender, age, interest, hobby, even sexual preference… a dick head ceo can take this (eventually will) information and use it to generalize and target audiences with higher accuracy than ever before. i can just see it now… i hate pop culture. one thing iv learned by majoring in business… its how to fuck people stupider than you! its the truth aint it? you greedy bastards…
Facebook GOT OLD!!! That’s the problem!
Facebook has no real purpose. Trust me! I’ve been a facebook user for over a year. I just tried this other site called CollegeHotList.com and it blows facebook away!
The site is similar to facebook since it’s only for college students. But it actually serves a purpose and has a lot more features: The ability to rate bars, clubs, humor, videos, music…forums, blogs, Hall of Fames…
The theme of the site is based on ratings and not this whole “linking” BS behind facebook. You can rate everything from people’s profile pictures (based on looks, humor or creativity, or nothing) to your friend’s personality traits (only positive of course).
Another cool feature is called HotMatch. Say you rate a girl at your school a 9 on
looks, and she does the same for you. You both get emails
notifying you both of your mutual attraction…and we all know what
happens from there…
Viacom should buy CollegeHotList.com since that site just started to get hype. Not a site that is already on the decline of its life cycle. “That’s just common sense business” as my Stern professor would say!
-Mathew H. NYU’06
Great plug for CollegeHotList, Mathew. Do you work there?
I have to agree with you. They are freaking morons for not taking the $750 million! It is very risky and greedy at least. Who is to say there won’t be another dot.com bomb? If the stock market starts to tank they’ll be wishing they would have taken the offer. If they do get the 2 billion they are looking for I consider them very lucky. Stupid lucky.
What I don’t get is why anyone would pay $750 mil in the first place? Why not just take say 50 or 100 million, hire a bunch of developers and come up with something better at a fraction of the cost? Eh…i simply don’t get it.
do faceB or myspace use CPC? i have only heard of social networks using cpm. why not a hybrid or use cpc? i saw some usage stats that would suggest its because users are not leaving the site.
I have to say I agree that they should have taken the $750m when they were offered it. Since that offer, their reach has gone down, and honestly the site isn’t all that I would hope it could be. There are so many competitors now coming into the arena that it will be a more fierce competition and nobody is going to be buying out these companies I would guess for several months:
and of course none of these compare to
in terms of traffic,…
Someone will emerge a winner, possibly several people or possibly all of them, but the buyout prices will be nowhere near the $2billion they’re seeking.
Almost a full year later from this post, care to comment again on facebook’s trajectory over the last year? http://www.alexa.com/data/details/traffic_details?site0=facebook.com&site1=&site2=&site3=&site4=&y=r&z=1&h=300&w=500&range=1y&size=Medium&url=facebook.com
I know it is always tough to predict outcomes, but most should know by now that alexa graphs are a lot like stock charts, analyzing the mini trends can lead to inaccurate predictions. To look at these properly we need some sort of index value to remove the global variations in usage.
It seems the opening of the site has not caused a major decline in usage and their geographic expansion plans may counter any plateauing we will see in the US market.
Any comments on valuation? This site is actually profitable unlike many others.
Interesting discussion, but I think the Facebook owners are smart for passing on the 750 million. I think they could easily sell it for a billion, but any more than that is being greedy. I am still upset about the fact that Facebook has allowed high schoolers, because it lowers Facebook’s credibility. That is the big edge Facebook has over Myspace. Credibility. See with Myspace any spammer, webcam girl, hacker or 12 year old can join, but at least with Facebook I have to have a student email account to register. Facebook is much organized as well.
boy wasn’t the original poster wrong
How wrong was Om Malik with his post HAHAH.. I cant believe this is still up
Zuck has proved him wrong with EVERYTHING he said above
i bet they are glad they didn’t listen you guys now that they are worth like 15 billion and sells a small 1.6% for $240 million lol to microsoft
talk about eating your words…
15 billion ring a bell?
I wonder who can give better advice. If facebook had followed the advice in this article, would they be the company they are today. Was opening to non-core audience a bad step? In hindsight, no.
So then, who/how can the future be predicted?
what a bunch of BS!
It’s interesting to look back and see what “experts” thought about the future of facebook in 2006 http://t.co/OQBUEd0j
Note to self. Pontificating about tech is difficult. From March 2006 –> Facebook: Too Late For $750 Million? http://t.co/V3INRlVy
RT @tsohost: It’s interesting to look back and see what “experts” thought about the future of facebook in 2006 http://t.co/OQBUEd0j