Is Facebook worth $10 billion?
By Nicole Kobie in Editorial
Posted in Uncategorized on
Facebook just sold off a chunk of itself for $200 million or so, suggesting the social networking site is worth some $10 billion. But like fellow online time wasters YouTube and Twitter, it’s tough to see how they could be worth that much.
Indeed, like those websites and other online publishers such as newspapers, Facebook faces the problem of coming up with a retroactive business model. It’s got the users, now it needs the cash… but making changes — say, charging for the site or features — will be difficult as Facebookers are a loud and angry bunch of complainers.
The obvious answer is advertising — its the golden goose newspapers are praying will stave off their deaths, but it’s not been enough to keep Google’s YouTube making a profit so far. Indeed, short of mooted plans to sell marketing data, it’s safe to assume Facebook is mostly about the advertising — unless the $1 to send a pixel gift in the shape of beer or birthday cake suddenly takes off.
Last year, the global online advertising market hit $47 billion in revenue, and was predicted by the Kelsey Group to hit $147 billion by 2012. Whether you agree with the numbers or not, online advertising is indeed growing.
Can Facebook contribute $10 billion of that? It has 200 million active users, of which half sign in each day. A lot of people are saying no. Now, maths aren’t my strong point (neither is spelling, in case you care) but according to Google, if you divide $10 billion dollars by 200 million users, you get $50.
So if we ignore costs — and the cost of servers and bandwidth is not insignificant — Facebook needs to sell $50 of advertising for each and every user to turnover $10 billion.
However, the site isn’t covered in ads, and those ads are cheap. Like most online systems, advertisers can pick how much they want to pay per click to drive people to their own sites — some people will choose to pay very very little indeed, mere pennies.
But those ads can be targeted loosely to users. I get a lot for dating sites, weight loss plans and credit cards — which are pretty well plastered all over the rest of the internet, too, so Facebook or its advertisers are clearly not taking full advantage of the extra data yet. (Either that, or I really am a poor, lonely, fat slob. Sob.)
In theory, Facebook should be able to charge more for its ads than those across the wider internet, as more is known about the user — this is the same idea behind more controversial behavioural advertising systems, such as Phorm. But rather than skim through our network traffic to find out about us as Phorm wants to do, we just tell Facebook up front, and update it frequently.
For the sake of my poor math skills, we’ll pick an even number. Lets say — and I’m making this up, to be clear — that the average PPC ad is worth $0.50 on Facebook. That means they need to surface enough ads to get users to click 100 times. If I’m on the site once a day, I need to click an advert once every 3 or so days. (For the record, I’m sure I don’t.)
Still, to me, that’s the business model they’ve got. Show lots of actually targeted ads, so I actually want to click, and hope to high heaven you’ve got enough users so the payments add up. Does it have potential? Definitely. But only if Facebook can keep the user numbers high, and get better, more relevant advertising that’s worth more…
At the moment, though… well, based on the repetitive ads about credit, dating and weight loss miracles, that’s just not happening. Indeed, at the current rate, Facebook doesn’t look to be worth much more than what we all pay for it.
Mock my maths or share your thoughts in the comments below… Is Facebook worth $10 billion?
Rated: 86.67% (3 votes)
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