Facebook worth $15 billion
Microsoft have paid $240 million for an unbelievably tiny 1.6% stake in facebook, valuing the whole site at over $15 billion.
Either or both of the following statements are true:
- Microsoft have just got royally ripped off in the old-timey dotcom sense of the word
or
- News Corp got the world's biggest bargain when they bought ALL of myspace for $580 million just a few years ago.
I go with the former - this is a desperate move by a desperate company. Microsoft couldn't have made something more valuable than 1.6% of facebook with $240 million dollars worth of the world's best engineers? That is lame if true....
Either or both of the following statements are true:
- Microsoft have just got royally ripped off in the old-timey dotcom sense of the word
or
- News Corp got the world's biggest bargain when they bought ALL of myspace for $580 million just a few years ago.
I go with the former - this is a desperate move by a desperate company. Microsoft couldn't have made something more valuable than 1.6% of facebook with $240 million dollars worth of the world's best engineers? That is lame if true....
posted by Tom Gara at 12:10 AM
23 Comments:
I would disagree. I dont think you can put a value on what facebook has. it has the likes and dislikes of around 20MM people that are between 18-27(give or take some). This is huge in a market where noone knows how to market to that demographic. I do not think myspace has the facility to back into the same category. but thats just my opinion.
12:39 AM
I don't think Microsoft is stupid. It's probably desperate though. Realistically speaking, $240 million is not much for Microsoft.
3:56 AM
As some one who works in the space I'm torn as to whether Microsoft overpaid.
Included in Microsoft's deal is an agreement that Microsoft will sell advertising on Facebook's non US sites and share the revenue with FB (MS already has the rights to the US site until 2011). This is what will make or break the price that they paid.
Facebook receives 50 billion page views a month from 47 million + users. 80% of the audience is on facebook for over 1 hour a day, most for much more. These numbers are HUGE and extremely lucrative.
The audience is targetted, people put in specifics about their lives (age, location, occupation) allowing for extreme and premium customization of ad campaigns which is something that MySpace lacks since it allows users to create personas with fake names and pics.
What we don't know yet is how "sticky" the Facebook audience is. Will they move en masse if and when another platform is built? If so, then yes MS overvalued the company.
On the other hand is the fact that Facebook is the web's largest photo storage site, will that and the open applications enough to keep users on FB, in the face of future competition?
Only time will tell.
5:09 AM
1. Microsoft best engineers work on Windows, Office, XBOX and Developer Division. The rest are second tiers people. Have you heard of Microsoft Consulting?
2. They are in a classic Innovator's Dilemma situation. Everything that they start must justify millions of returns otherwise it's not worth it for them to start it. To reliable achieve those minimal millions, they do "tried and true" methods and simply ignores the serendipity factors in launching products that define a new market.
3. $240 million for 1.6% ? They are doing the eBay's Skype mistake. But this is just a defensive move.
5:12 AM
I would say you cannot simply apply mathematics here.If Microsoft paid 240 milion for 1.6% share that means that Facebook is worth much much more that 15 billion. With 1.6% you have only theoretical decision rights. The price of majority share would be much higher, not speaking about 100%.
5:35 AM
re the advertising potential, two things:
- facebook has a notoriously poor advertising click-through rate, which is evidenced by the fact that very few "premium" advertisers choose to advertise there
- anybody who things the facebook empire will last for 1000 years is just deluded - like every single other web phenomena, something new and better will overtake it. for sure, social networks are stickier than many other website, but still, creative destruction happens quickly and inevitably on the internet
8:03 AM
1. First law of valuing a company is that there is no such thing as a static value of a company.
A company is worth, in value, completely different amounts to different companies.
Same firm can be valued at (+/-) 100% based on the who the buyer is (the financial equivalent of beauty lies in the eye of the beholder)
2. Another key thing in valuation (when buying tiny shares) is to earn the 'right of first refusal' when the company comes up for sale.
3. and most importantly - the right to formally talk to each other as 'owner-manager' allows formal partnership and deal making within legal remits without being curtailed by lawsuits: makes the world of a difference to be in touch with something that is phenomenally successful. (for a lumbering giant like Microsoft)
4. Talent - if MS can attract even 3 creatives from FB into its company - it would have got its money's worth.
$240mn (which is just �120mn) is not much money to pay for all of the above.
Rajiv
8:57 AM
MSN, the division in Microsoft that actually rely on advertising revenue, loses 50 cents on every dollar it makes ($1 billion loses on 2.2 billion revenue - http://spreadsheets.google.com/pub?key=pYFPEp3S18PQ8Hy2lb4jBOA)
"Google's profit run-rate is $4.4 billion on $16 billion of revenue. Yahoo's run-rate is $750 million, on $7 billion in revenue. Even fellow-cellar-dweller AOL is printing cash: $1 billion profit pace, on about $2.1 billion of revenue. "
Advertising is something that they don't know about and hasn't able to execute well.
They have been doing some pretty big acquisition on this space but we'll see if it can actually change anything because Microsoft DNA is software production, not advertising.
9:34 AM
As a former @er and current 'softie, I'll chime in.
MSFT has a market cap of 292 billion
This facebook money seems essentially like VC money - they are by definition high risk type investments. I think facebook is less high risk than others though. It has an established brand and users spend a lot of time in facebook than in a typical website.
MSFT is known for making some funny investments sometimes - remember that 150 million investment in 1997 to a little company called apple? :)
9:42 AM
two more cents from me.
Firstly, regarding click through rates and facebook. Nobody clicks on ads anymore, ads on high page views per user per visit sites are rarely sold on a click through basis anymore and all the interactive ad agencies know it. Compounding that is the fact that FB?s key demographic the 18-24 set is even less likely to click on a ad than their older peers, namely us ?
I think FBs unwillingness to use their user inputted data to target ads (ie, I?ve been out of university for 6 years but see useless ads for undergrad colleges when I log in) has been their biggest crutch in the ad game. They need help in making their ad server able to do it. Dody?s right MSN isn?t the leader in online advertising but they have more to gain than their bidding competitor Google by developing a platform to do this. Facebook rivals Google in terms of traffic in many of the markets it operates. Both getting in to FB and keeping google out are huge coups for MSN and really their only shot at making a mark in the ad game.
There are lots of ifs here: if they can target ads, If facebook remains sticky for at least 3-5 more years and, I?m with Alistair, if viewed as VC funding I think this was a no brainer for them.
2:27 PM
sorry, as an addendum. I meant to say that no one clicks on ads anymore so its all about branding. I didn't want to insinuate that online advertising is bad just that its evolving. If it wasn't, I wouldn't have a job.
2:30 PM
Facebook is working on rolling out a new advertising platform that will target ads to your profile and social network, and Microsoft stands to benefit quite a bit if this ad platform turns out to be as effective as it frankly should be -- Facebook knows a ton about each of its customers. I don't think Facebook is "unwilling" to target customers based on profile data--indeed, they've said they're working on just that. They simply haven't gotten around to it yet.
Considering the depth of Microsoft's pockets, paying $240 million for what is in essence an exclusive advertising deal doesn't sound like a bad idea.
3:06 PM
This investment needs to be seen from a larger perspective than a $240 million investment. How much will this investment help Microsoft in its iteration to become number 1 or 2 players in the online advertising business?
This is just part of a series of advertising oriented acquisitions this year that Microsoft made. The last one was worth 6 billion dollars (aQuantive).
Facebook is really useful because it's private. Each person can really limit the audience to her/his information. Finally we can share our drunken half naked party pictures quite safely away from the prying eyes of search engines.
Here you can have a highly targeted 20-50 million subscribers based for your advertising because Facebook knows, but not anyone else, about the private information of each individual.
But in terms of audience and reach, the wild open web still beats any walled garden, no matter how successful.
In the wild web, Google is still The Queen and become more dominating every day.
Now the crucial question is whether they will successfully deployed a Facebook advertising's engine, but how Facebook will interact with the rest of the wild web.
This will answer the question whether Microsoft will ultimately be able to beat Google.
3:39 PM
people keep saying that $240 million isn't a lot of money. what the hell guys? 240 million is a shit ton of money! just because MS is worth $250 billion doesn't change that.
with that kind of money, a well managed company should be able to get something more valuable than 1.6% of facebook.
as for the VC thing, what kind of VC invests a quarter of a billion to get less than 2% of a company?
Asha, I'm not in the online ad business like you, but i find it hard to believe that the "branding" value of advertising can replace the actual click-through. the whole reason online advertising took off is because of the measurability of results right?
3:49 PM
Easy Tom. We are all Bill Gates around here :)
5:33 PM
tom - you're right that the measureablity of click throughs was reason online banner ads really took off. But as people stopped
But its changed as behaviors have changed and people don't want to have their user experience altered. I know that I personally don't click on ads anymore but will manually enter in a website or google a company mentioned in an ad.
Its moved more to TV type branding ads. You can get demographics for site or TV visitors and place the ads accordingly, FB is even more customizable because users input their own needs and you can technically say "I only want to reach engaged couples btw the ages of 25-30". and then have your ad run 5,000,000 times to them. The ability to do that is SOOO exciting (I can only dream of it), lets see if they can can it right.
Its definitely more difficult to measure and a challenge for my company and our competitors. But fortunately the ad folks generally understand it and most sites charge on an impression basis, its like a united front :)
Dody - like your questions regarding the Wild web. They are good things to ponder.
5:52 PM
1.26%?
Mark Zuckerman's grandma probably owns more.
6:01 PM
I give Facebook maximum of 3-4 years, before it fades away ...
8:17 PM
MS has definitely invested this as long-term stake in the FB. FB's using the money as a VC fund to probably develop targeted ad algorithms with MS's expertise, with which it could later share billions in revenues.
And that follows onto why the valuation is so high. This could just be about scaring away potential suitors (read: Google/ Yahoo) from coming in and taking a majority stake in FB before MS can get its money's worth from the deal.
In that sense, $240 million is a great deal all round.
8:41 AM
if we have already posted 19 comments before me on this I believe it is worth microsofts money. advertising wise. blocking google from entering social networking. if google entered social networking these guyz would be all done. i think microsoft paid a very cheap price.
11:40 AM
google acquired a social networking site called orkut a while ago - but it is no facebook, or even linkedin for that matter.
7:12 AM
Orkut was made by a Google grant. It's pretty big especially in Brazil.
http://en.wikipedia.org/wiki/Orkut
8:40 AM
Asha: when you google a company and click on one of the related links you're clicking on an "ad" as well. A lot of ads are so nicely embedded now, that you don't even realize anymore what's an ad and what's normal content.
9:28 PM
Post a Comment
Links to this post:
Create a Link
<< Home