Wednesday, 26 September 2007

Article on Facebook's value - By: Stefan Enslin

Microsoft is looking to buy a 5% stake of Facebook for $500 million, valuing the website at a staggering $10 billion. James Harding, Business Editor for Timesonline question “is it worth that much?” Well, that depends on the answer to a different question: “is Facebook an AOL or a Google?”

Harding commented that “AOL started out as the internet service for people who did not know the first thing about the internet. One of the early features it offered was a chatroom - a means for people to talk over the web. Thus was the germ of online social networking sown. Times were good. Then, in 2000, AOL merged with Time Warner in what has become regarded as the worst deal of all time. A culture clash between Time Warner’s old-media stalwarts and AOL’s upstarts ensued. Customers left for alternative internet providers.”

From this deal and because of the culture clash between Time Warner & AOL, it emerged that AOL had been vastly overvalued. After this business deal, AOL’s value plunged tenfold. “Google, by contrast, makes a lot of money - $3.7 billion in revenues in its most recent quarter. Remarkably, it has not marketed itself in any meaningful way: Google’s users come to it, the company then defies all e-commerce logic by getting rid of them as quickly as possible by pointing them at a destination outside its plot of cyberspace. It dominates a market - search advertising - that it largely invented and its shares are up nearly sevenfold since their 2004 debut.” said Harding.

Facebook as we all know was born at Harvard University. In august this year we saw the founders of ConnectU taking Mark Zuckerberg, CEO and co-founder of Facebook to court. It is understood by the ConnectU owners that they hired Zuckerberg in 2003 to help them set-up ConnectU which is similar to Facebook and he stole the idea that is now the global phenomenon called Facebook.

Harding said “This year Facebook will make an estimated $100 (£50 million) million in revenues, about $2.50 per current member. That makes it very hard to justify a $10 (£5 billion) billion tag. There are shades of AOL-style hype. Facebook needs funds to bolster its efforts at turning visitors into cash. Microsoft, once the upstart, now looks increasingly like the old guard trying to find its way in the Web 2.0 era.”

In my mind I think Facebook tries to emulate Google, but it is not easy to say with confidence. It is not the biggest social networking site and has a big rival named MySpace with almost as many users as Facebook. True, Facebook will still continue to grow as most of its users are youngsters and its dominance over the social networking market will not easily be broken.

No comments: