Is Facebook vulnerable to takeover?

In the second of his occasional series, Simon Brew questions whether Facebook is really on every major media company's shopping list...

By Simon Brew, 27 Jun 2007 at 14:37

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An analyst at Pali Research, Robert Greenfield, has been blunt and to the point. Facebook, he says, is something "every big media company should want to buy". His argument is that there is barely a media company on the planet who couldn't benefit from the reach of Facebook. And he might be right.

Also, if that class divide really does exist within its user base, that too has to be a significant selling point. There is informed thinking that the users of Facebook are a dream demographic: large numbers, they're intelligent, and they are a more educated group with likely - and crucially for any owner or advertiser - more disposable income. That's the theory. All this from a site that really hasn't started to tap the revenue potential of its user community, and you have an enticing opportunity for any buyer, whether it is a tech company or even private equity.

In Greenfield's analysis of Facebook, he goes on to say that "Assuming Facebook's growth trajectory continues as we expect, the knowledge that could be harvested from controlling the Facebook platform would appear to be the most valuable data in the history of the media world". Not bad for a company with a turnover - not even profit - that is estimated to sit below $100m a year.

Past suitors

So who's interested? Well, believe the never-confirmed reports, and several companies have already been snooping around. In March 2006, it was widely reported that the Facebook creators, led by Zuckerberg, had turned down a $750 million (£375 million) bid for the business. It was further reported that the asking price required to trigger a deal was $2 billion. Given that was over a year ago, you can imagine where the price tag is heading now.

Nothing formal was ever announced regarding a bid or potential sale, although there was consistent speculation that media giant Viacom - owners of Paramount Pictures, MTV and VH1 - was also in the running.

Today's suitors

It's simply hard to rule too many people out. If the much-rumoured stock-centred sale of MySpace to Yahoo falls through, then new Yahoo chief executive Jerry Yang may wish to make his mark quickly with a decisive investment. Facebook may just be it. It wouldn't, it seems, be the first time it'd tried either. Yahoo is believed to have failed last year with a $1 billion deal, and social networking is clearly very much on its agenda.

Let's not entirely dispel News Corporation either, even if that avenue looks very unlikely. Would Murdoch farm off a service at its peak to fund the purchase of one that - on paper - seems more desirable?

There're also recurring, although hardly deafening, Microsoft rumours. You can't help be see the logic in a Microsoft/Facebook tie-up. Certainly it would plug an obvious gap in Microsoft's web portfolio, and it's a firm with the cash available to fund such a major buy.

Finally, there is Google. Its aggressive acquisition streak has bolstered it to the point where it's the web company everyone seems in fear of. With Facebook in its portfolio, linking with services such as Gmail and YouTube, it would be pretty bullet-proof, at least in the short to medium term. Such a deal might see it fall foul of regulatory authorities that are also becoming concerned about Google's growth.

Selling up

There is still the unanswered question of whether Facebook is actually for sale at all. Unlike the last entrant in our series, Yahoo, it's hard to describe Facebook as a vulnerable company. It has, by wide consensus, a healthy period of growth ahead of it, and a real chance to cement itself as the social networking site of choice. There's not even the slightest hint of a fire sale here: the next few years are set to be very rosey for Facebook indeed.