Posted on Saturday 8 April 2006
According to BusinessWeek, Facebook turned down $750 million because they want $2 billion.
Facebook, the Web site where students around the world socialize and swap information, has put itself on the block, BusinessWeek Online has learned. The owners of the privately held company have turned down a $750 million offer and hope to fetch as much as $2 billion in a sale, senior industry executives familiar with the matter say.
Web 2.0 seems to be officially overheating. If someone pays $2 billion for Facebook, is there anyway they’ll ever get a make a profit within, say, a decade? What is the business model that generates profits on this purchase? There’s no way you’ll come close to make that with a purely ad-based model. Facebook already has ads, so it doesn’t make sense that they’d sell it for a price that they thought was equivalent to what they’re already making on ads. Yea, you get a connection to a few million college and high school kids. But you could buy that data from direct marketing for a lot cheaper. You could build a website that gets a lot of college-age visitors for a lot less than $2 billion. Why you would pay $2 billion for Facebook I don’t understand.
It’s becoming frighteningly close to being like the end of the dot com boom. Back in the day when people were paying obscene amounts of money for companies with no sustainable revenue stream that just had a mega “cool” factor. Now, social networking, AJAX, and Web 2.0 are the buzzwords that are the foundation for sites and companies that are hoping to get bought up before someone realizes they’re cool, but not a good business model.
As an example, I heard (via TWiT) that Yahoo! is regretting their purchase of Flickr. Flickr is mega expensive in terms of bandwidth and Yahoo! can’t figure out a way to make much money on the deal. You can’t really close or limit access without making a huge population of users mad and taking a rather unpleasant PR hit.
The bubble pops when a few more companies figure out that these companies may be cool but aren’t that great for generating money. Only so much money can be made by placing ads on a heavily viewed site (plus, you have to pay the owner significantly more money than they’re already making on ad revenue). Charging a subscription for a previously free site seems like a losing proposition as then someone else will just come along and build a comparable free site again. Am I missing an obvious reason to pay $2 billion for Facebook and the like?
Tags: Business, facebook, Science and Technology, web-20
The “obvious” reason is that somewhere in this stack of current loosers, is another Microsoft or Oracle with riches to be gained for early participants. Welcome to the dot.com roulette wheel.
Hey, perhaps Yahoo needs a bright UI graduate with a PhD in computer engineering to figure out the bandwith thing. And, the bright computer engineer can then form his own company and get on the roulette wheel bandwagon. If successful, don’t forget about Dad!
At least Microsoft and Oracle had a foreseeable business model. Maybe these companies need a business genius to help them figure out a way to post large profits.