The Math On Social Networking Still Doesn't Add Up
from the in-flay-shee-on dept
We've wondered about the valuations getting tossed around for social networking sites before, since they always seem to underestimate history -- in particular the fact that the web is littered with the remains of social-networking and community sites that have fallen prey to the faddish nature of the genre. It's a little surprising to see, then, Yahoo's internal projections for Facebook, part of a set of leaked documents that were reportedly prepared for takeover discussions. The story goes that, in the middle of the year, Yahoo offered a straight-up $1 billion for Facebook, which despite media reports, wasn't enough -- so Yahoo was prepared to go as high as $1.62 billion. This offer was made based on a projection that Facebook's $50 million or so in revenues this year could grow to $969 million by 2010, and generate $1 billion in profit by 2015. That's some, uh, healthy growth, to say the least, apparently grounded in the belief that Facebook's user base will continue to grow and reach 83 million by 2015. There are a few potential problems here: first, it's awfully hard to believe that Facebook will still be relevant and attractive in 9 years, given the disappearing nature of previous social-networking sites. Second, a significant challenge for Facebook will to be to hold on to its users as they age, so that user numbers grow, instead of aging users just being replaced by new younger ones. Finally, and most importantly -- those user numbers are meaningless without a means to monetize the traffic, something Facebook and its ilk really still haven't managed to figure out. For all the talk of the riches social-networking can offer, they aren't materializing, except in inflated buyout offers.