Tuesday, May 26, 2009

Is Facebook Worth $10 Billion?

Facebook is apparently worth about 10 billion dollars -- if you ask Facebook. After a Russian firm invested $200 million in the company in return for preferred stock, FB claimed this represents a 1.96% equity stake at a $10 billion valuation.

I dunno about this. Facebook has been around since 2004 and has 200 million members but my understanding is they haven't made any profit yet.

They make money, of course. All those 200 million people log on like crazy and whomp up a buttload of page views.

FB serves ads on all those pages, and because they have so much inventory, nearly anyone can afford to advertise there. And it shows. Your ad, should it run on FB, will have such exalted company as lowermybills.com, The 300 Workout (based on the movie, I suppose), and See Who's Looking For You.

But here's the good news! Hardly anyone will notice your ad, and few of the people who notice it will actually click on it. Smarter folks than I have estimated that Facebook has an average click through of about 0.05%. Compare that to the industry average for banners of about .2% to .5% and 1%-5% for paid search. In other words: awful.

I'm not saying the Trumps Of Doom are sounding for Facebook. Yet. 200 million users is an impressive number, but if you can't figure out how to make a profit from them, even a crowd that big is irrelevant. And irrelevance may be the key issue.

People use FB to communicate with their friends, their 'social network.' Marketers will have a very hard time being relevant to that exchange, without violating privacy rules, or just being a giant pain in the ass.


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