Home > online marketing, Social media strategy > The value of 500 million friends

The value of 500 million friends

The Social Network” the new movie about the origins of Facebook comes out next month, but, as my Dad says about less then inspiring films, I think I’ll wait until this one makes it onto TV to watch it.

So with the number of Facebook users now half a billion I began to wonder what the value of a company like this should really be.  March estimates put Facebook’s value at $11.5 billion – not that the private company is likely to be sold anytime soon.  But where does this value come from?

Facebook only began making money last September and what’s most odd for a brand new “channel” is that most of its estimated $1 billion a year revenue comes from selling traditional online ad space.  (Solving this conundrum could make almost as much money as cold fusion.) This means Facebook has only just surpassed the revenue generating ability of one of its most popular apps, Farmville, which makes $600m a year.

So is the value based on advertising income alone?  If so, the return on investment is likely to be an extremely long one and could be severely impacted by any slow in growth in user numbers, which is a massive risk given the spectacularly bad investments made in Friends Reunited, My Space and Bebo.

What about the users themselves and their data?  A price of $11.5m values each of Facebook’s 500m users at $23 each.  Which is way more than you’d pay for buying in data – data that you can actually use for commercial purposes – about 100 times more than you’d pay to purchase customer data to be exact.

I’ve no idea about corporate finance and how the value of private companies is calculated, but I can’t help thinking that despite Facebook being ground-breaking in design and mind-boggling in scale, $11.5 billion is setting the bar a little high and I’d be hoping my pension scheme wasn’t investing in any unlikely Facebook flotation.

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  1. Neil Chappell
    August 16, 2010 at 10:21 am

    Given the number of under 25s who reportedly look at newspapers (not many), versus the number of 25s who look at Facebook at least once a day (many), it might be that Facebook can realise some value purely through the ‘old’ display model. But as you say, one can’t help feeling that Mark Zuckerberg is spending more than a few minutes each day pondering this question.

  2. boingster
    August 17, 2010 at 12:39 pm

    new Twitter movie…

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