Somehow I landed on this otherwise unassuming article on CNN, dated August 24th 2004, about how musicians were using the Web to promote themselves. Today this article would largely be about MySpace, but as recent as August 2004, there was no mention of MySpace whatsoever. Welcome to World Wild Web, where things can change quickly, very quickly.
Between 2004 and 2007, MySpace has grown into a social phenomenon. Acquired by News Corp., today the site continues to charge full steam ahead. Of course, MySpace is no longer the only dazzling social network, Facebook has managed to become the hottest company in the space, if not entire Web sector.
A Closed Network for College Students
Facebook was founded in 2004, and why that is very relevant is that most college graduates who began using it are starting to graduate, so it’s not a surprise that Facebook began a series of steps over the years to mitigate any risk of mass defection or user loss rates.
We’re Open for Business!
Not only did Facebook open up networks to high school students, but it allowed non-students to register as well. I never joined MySpace (though we have created pages for WatchMojo.com) but I did eventually join Facebook. In all honesty, I joined Facebook because I was writing about the company quite a bit, so it made sense. This is the same reason I signed up eventually to Linked In. The difference, being, of course, that I log into LinkedIn, well, almost never, but I find myself on Facebook quite a bit.
I never poke anyone, I don’t search too many pages. I try to avoid it as much as possible, but not a day goes by when someone from somewhere does not lure me back into the network, and therein its genius.
Rosy Picture: Explosive Growth, past, present and future
Facebook grew from 12M users at the onset of 2007 to 24M currently.
Founder Mark Zuckerberg this week stated that the site was growing 3% per week, adding 150,000 users per day. Given the exponential nature of social networks, if the site is indeed growing 3% per week, and currently has 24M users, then by our calculation Facebook will have 100M users by February, 2008. Please note this is an exponential forecast: it calls for a 3% growth on the 3% growth… I also did less conservative forecasts etc., but for the sake of this post, this is for purposes of illustration and not an actual forecast that “Facebook WILL have 100M users, and it will by Feb 2008.”
Will it? Who knows. Maybe, maybe not. But there are a helluva people NOT on Facebook that will be on it before there will be less. MySpace is growing too, 100M users, adding 300,000 per day, so I’m not sure if Facebook will really surpass MySpace, but some people do.
The Gloomy Picture
Of course, the simple reality is that a major core of the Facebook community will be leaving college and getting into the workforce, looking for jobs, networking. Naturally Facebook is a great fit for this, but since a lot of students won’t have access 24/7 to Facebook (many employers cut off access to Facebook), I suspect it’s foolish to think that graduating students will remain as connected to Facebook as they were while in school.
Admittedly each new year brings fresh would-be users for Facebook, but the fickle nature of the demographic suggests that Zuckerberg and company should not be taking anything for granted.
Facebook Platform
Zuckerberg this week also took an audacious move to lure other companies from entering the Facebook ecosystem. It’s still being talked about. Here’s our original post when it was announced.
I view this as one of the greatest double-edge swords presented to marketers. On the one hand, why not tap into Facebook’s network and 24M users; on the other, you just strengthened Facebook’s hand.
M&A: Close but no Cigar
But as Zuckerberg and his colleagues struggle to justify passing up numerous bids from various firms:
- Viacom’s $800M
- Yahoo!’s $1B and $1.6B
- Wikipedia’s Facebook entry suggests Google offered $2.3B
Facebook should be more concerned with avoiding the fate of Friendster instead of trying to be the next MySpace or the anti-MySpace.
IPO: Not a Slam Dunk
Financial backer Peter Thiel floated an $8B value which is, well, frankly, nutty. Even in an eyeballs-matter landscape, Facebook might never get an exit as lofty as those $2B range ones because it’s true that the money is now chasing ad networks and not social networks. Social networks have proven unreliable and challenging to monetize. Sure, there’s the IPO route, but choosing it means that Facebook’s user growth alone will not be enough to dazzle investors who can choose to invest in similar high growth Web firms like Google, who last year generated $10B in revenues and $3.2B in profits.
Facebook is rumored to be doing $150M in revenues, and we know social networks are not great monetization platforms. The one upside: Facebook is a leader in time spent on a site amongst the coveted 16-24 crowd (and its fastest growing segment is 25 and over) so it will become a must-buy media property amongst advertisers.
Will Facebook become the next Friendster? No.
Will Facebook become the next MySpace? Not sure that’s what it’s trying to do. But Facebook is already in the same ballpark, so it’s not surprising that the News Corp. rumor won’t go away.
By now, everyone (myself included) is counting on an IPO. But an IPO really demands a monetization strategy befitting the audience’s size.
Murdoch Calling?
Rupert Murdoch came out last year and said MySpace was worth $6B. Crazy talk. Around that time, UBS pegged FIM’s enitre value at $2B, suggesting FIM was worth more separate than combined. I covered this here.
Regardless of what a commoner like me thinks, Mr. Murdoch might regret making that statement because I don’t think he has ruled out making a run for Facebook. At his yearly retreat, rumor had it that ’twas Zuckerberg and not, one would assume, the MySpace guys, who had Murdoch’s attention.
What would MySpace be worth right now?
MySpace has 100M users but only $300M in forward annual revenues. It’s also losing money, I believe. What would the market value that at? Assume a lofty 10x revenue and that’s $3B. Is MySpace worth $3B? In this crazy market, maybe. It can’t be worth less than $1.65B, which is what YouTube went for, and is probably more in the $2-3B range when you consider that MySpace has tripled since News Corp. bought it along with Intermix’ assets for $580M in 2005. I am not saying that in a few years it can’t be worth, but saying today that it’s worth $6B or something is crazy talk.
So, what does that mean? I think Facebook and MySpace are comparables, at least for a valuation perspective. And while many think an IPO is a slam dunk, I can see someone being able to buy Facebook, still. It won’t be cheap.
What Would it Take to Buy Facebook Now?
It’s rumored that Zuckerberg owns 30%. Does he regret it not selling Facebook for $1.6B to Yahoo! or $2.3B from Google? Probably not. But he must, despite the swagger, feel some heat from investors. I think if Zuckerberg can net $1B in the deal, he’s be all for it. That implies a $3.3B deal.
Last year, I estimated Facebook to be worth $2.35B in 2010 if social networking ad estimates for 2010 held up. Obviously, the market has changed, and yes, Facebook has changed.
I’m not sure Thiel, Greylock and Accel will accept $3.3B, but that’s a lot of money for a company making $150M in revenues, with a less-than performing search deal on its hands.
Not to many companies can write a check for that much.
Microsoft can. I touched base on this in “Should MSFT turn its attention to Facebook?”
Google, who parted with $3B of its $10B for DCLK might, but probably won’t.
Yahoo! They are roughly in the same boat as GOOG cash-wise.
News Corp. can, and might. After all, Murdoch was willing to pay $5B for Dow Jones. That’s comparing apples and oranges, but the fact is, he’s bitter about being rebuffed - at least hitherto - by the Bancrofts, so maybe he’s reaching out to The Zuck?
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June 13th, 2007 at 11:16 am
[…] From a few days ago, Watchmojo tracks Facebook’s growth and says that 100 million users is not a question of whether but when. Founder Mark Zuckerberg this week […]