User Control Panel
Search iVirtua
Advanced/Tag Search...
Search Users...
What is iVirtua Exclusive Community?
  • An exclusive gaming industry community targeted to, and designed for Professionals, Businesses and Students in the sectors and industries of Gaming, New Media and the Web, all closely related with it's Business and Industry.
  • A Rich content driven service including articles, contributed discussion, news, reviews, networking, downloads, and debate.
  • We strive to cater for cultural influencers, technology decision makers, early adopters and business leaders in the gaming industry.
  • A medium to share your or contribute your ideas, experiences, questions and point of view or network with other colleagues here at iVirtua Community.
Guest's Communication
Live Chat
Teamspeak (VOIP) Audio Conference
Private Messages
Check your Private Messages
Themes
Choose an iVirtua Community theme to reflect your interests...
Business Theme
India/Arabic Theme

Gaming Theme
iVirtua Recommends
Fly Emirates Advertising
15 more Reasons Facebook Isn’t Worth $15 Billion
Digg This Digg Topic Tag it on del.icio.us Tag topic on On del.icio.us Technorati Search Technorati Search Post to Slashdot Post to Slashdot
You are currently in Hardware, Internet, Networking, Comms and Security
Post new topic Reply to topic
Wed Dec 05, 2007 2:19 pm Reply and quote this post
With all the hype about Facebook and talk of the company potentiallybeing the next Google or Microsoft, I thought it was an appropriatetime to provide 15 logical reasons why Facebook is not worth $15billion.
15. Despite all the Facebook hype, MySpace is still by far the most dominant social networking websitein the world. While its growth has slowed, all markets are finite andFacebook groupies should not expect that Facebook’s impressive growthcan continue unabated forever. It still has quite a way to go before itcatches up with MySpace, and if that ever happens, it too can beexpected to reach a plateau.

14. Facebook is reportedly set to generate around $200 million inrevenues this year. $15 billion values the company at 75 timesrevenues. Google, which has monetized advertising on the Internetarguably more effectively than any other company, currently trades ataround 50 times earnings (profits). Facebook’s earnings are unknown.
13. The majority of Facebook’s revenues reportedly come from itsadvertising deal with Microsoft under which it is apparently guaranteedpayment regardless of how much Microsoft is able to generate fromadvertising sales. This type of arrangement does not realisticallydemonstrate how Facebook will develop a profitable, scalable long-termbusiness model.
12. After Microsoft made its investment in Facebook, Microsoft CEO Steve Ballmer refused to predict what Facebook will be worth.This highlights the fact that Microsoft’s primary interest in aFacebook investment was to secure an expanded advertising deal - not tomake money if and when Facebook goes public. Essentially the equityMicrosoft purchased is ancillary and Facebook leveraged the opportunityto manufacture a valuation that suited its interests.
11. Research firm eMarketer projects that by 2011, ad spending in the United States on social networks will reach only $2.5 billion.While I personally believe that most projections from research firmsare BS, it’s worth noting that most of the time, these projectionsactually exceed the numbers that are realized. For argument’s sake,however, even a $2.5 billion market for social network advertising in2011 makes it difficult to support exorbitant valuations for socialnetworking properties. To put things in perspective, consider thatGoogle reported revenues of over $4.2 billion in the third quarter of2007 alone.



10. While Facebook does hold one of the dominant positions in thesocial networking market, the barriers to entry in this space are quitelow as evidenced by the large number of social networking services outthere. As Steve Ballmer even stated, “There can’t be any more deeptechnology in Facebook than what dozens of people could write in acouple of years.” That’s not to say that it will be easy for an upstartto displace a company like Facebook as the technology isn’t where theprimary value lies, but in relative terms, Facebook is far from being a“wide moat” company.
9. The longevity of social networking as a standalone market isquestionable. Many have argued that social networks like Facebook aresimply the Bubble 2.0 versions of Geocities. When the next big thingcomes along and as social networking functionality is more deeplyintegrated within existing applications and media properties, it wouldbe foolish to expect that Internet users’ fascination with standalonesocial networks will remain as strong.
8. In many, if not most, consumer markets today, loyalty is verydifficult to build. While users of social networks do invest inbuilding their identities and networks on services like Facebook, thechanging costs are not significant enough to guarantee loyalty. This isexemplified by the migration of users from Friendster to MySpace andnow by the migration of some MySpace users to Facebook.
7. Although Facebook has seen strong international growth, it hasfailed to develop localized versions of its service while competitorslike MySpace have been much more aggressive in doing so. Additionally,Facebook’s failure to expand internationally early on createdopportunity for Facebook clones like StudiVZ in Germany and Xiaonei in China, both of which gained traction and were acquired.
6. Facebook faces several legal threats. The most notableis from former Harvard classmates of Mark Zuckerberg who allege thatthe Facebook CEO was hired to build a similar product but stole theidea and intellectual property instead. A former Facebook “co-founder”who was sued by Facebook also apparently has a counter-suit against thecompany and its other founders. The strength of these lawsuits isquestionable, although the recent 02138 articledoes note inconsistencies in the stories given by Facebook and MarkZuckerberg over the years. Legal disputes of this nature are alwaysdangerous because courts are unpredictable. Until these are resolved,clouds will hang over the company.
5. With the investment from Hong Kong billionaire Li Ka-shing,Facebook has a war chest of over $300 million. How it is going to beput to good use is unclear. I would argue that Facebook’s decision toleverage its position to raise such a massive amount of capital onhighly-favorable terms may not be of benefit to the company at thisstage. It has yet to demonstrate a profitable and scalable long-termbusiness model and its ability to successfully expand outside of itscore area of business seems highly-questionable. Facebook may not bedumb for taking cheap money while it’s on the table, but too much moneycan have a negative impact on a company in many ways.
4. Facebook’s recently-launched Project Beacon imitative has caused a backlashamongst Facebook users, privacy protection advocates, the media andeven government agencies. It’s clear that Facebook and Mark Zuckerbergoverestimated the value they perceived Project Bacon would provide toFacebook users and underestimated the “creep” factor. The poorimplementation and execution of Project Beacon does not inspireconfidence in Facebook’s desire and willingness to respect the privacyof its users.
3. Despite marketers’ fascination with the potential offered bysocial networks, Facebook can hardly be considered to have a solidrelationship with marketers. In the past, advertisers have reported dismal resultsfrom Facebook advertising campaigns and even the launch of Social Adshas not cemented Facebook’s place in the heart of marketers. A numberof the brands Facebook so proudly announced as being “landmark”partners in November, including Coca-Cola, have put their participation on hold. Recent reports indicate that Facebook may have even lied to advertisers about how Project Beacon would work. As I have noted, the true value social networks will provide to marketers is questionable.
2. Facebook is led by 23-year old Mark Zuckerberg. He maintainssignificant control over a company with more than 350 employees. As onemight expect given his age, Zuckerberg has no previous comparablebusiness experience. While I don’t believe age and experience arenecessarily the most important elements of a capable executive, thereare reasons to question his capabilities. Beyond the fact he used tohand out business cards that read “I’m CEO…bitch” and that some havedescribed him as arrogant, over-ideological and downright unethical, hehas been at the helm of some major blunders. Facebook’s poorly-executed launch of News Feeds upset a large number of Facebook users and forced a stubborn Zuckerberg to backtrack. Facebook’s bungled launch of Project Beacon has caused an even bigger firestorm and backtrack.More importantly, as noted above, it caused a major setback inFacebook’s relationships with important brand marketers. Facebook iswell beyond the dorm room startup phase and the stakes are far too highfor these types of mistakes. Perhaps unfortunately for Facebookinvestors, Zuckerberg seems unlikely to give up control anytime soonand the favorable terms with which Facebook has raised capital leaveinvestors with little option but to go along for the ride.
1. At the end of the day, for all of the exuberance, one of the mostpopular features of Facebook is still the ability to “poke” other users.

Contributed by Editorial Team, Executive Management Team
372659 iVirtua Loyalty Points • View ProfileSend Private MessageBack to Top

Related Articles
Post new topic   Reply to topic


Page 1 of 1

iVirtua Latest
Latest Discussion

Discuss...
Latest Articles and Reviews

Latest Downloads
Subscribe to the iVirtua Community RSS Feed
Use RSS and get automatically notified of new content and contributions on the iVirtua Community.


Tag Cloud
access amd announced applications author based beta building business card case company content cool core course cpu create data deal dec demo design desktop developers development digital download drive email feature features file files firefox flash free future gaming google graphics hardware help industry information intel internet iphone ipod jan launch linux lol love mac market media memory million mobile money movie music net nintendo nov nvidia oct office official online patch performance playing power price product program ps3 pst publish ram release released report rss sales screen search security sep server show size software sony source speed support technology thu tue update video vista war web website wii windows work working works xbox 360 2006 2007 2008

© 2006 - 2008 iVirtua Community (UK), Part of iVirtua Media Group, London (UK). Tel: 020 8144 7222

Terms of Service and Community RulesAdvertise or Affiliate with iVirtuaRSSPress Information and Media CoverageiVirtua Version 4PrivacyContact