The Facebook Effect, by David Kirkpatrick 发布的博文
Why Arrington is wrong about Facebook’s finances
The redoubtable Michael Arrington of TechCrunch recently posted a long and somewhat dire analysis of Facebook’s finances. He sees a company burning through cash and possibly soon to take desperate measures to get more.
I am not privy to Facebook’s numbers, sadly. But for my book I’ve been spending a lot of time talking to Facebook executives. The mood at Facebook is hardly one of desperation. There is healthy concern about the consequences of the economic crisis, but a bigger concern remains offering a product and quality of service that enables the hordes converging on Facebook to stay and enjoy it. This company’s resolute focus on users matches any I’ve ever seen.
Arrington notes that Facebook has raised about $500 million, and runs through some highly speculative numbers on how much it costs to run the place. He calculates “a couple hundred million dollars a year just to keep the lights on.” Then he suggests the company may have already spent half of what it has raised.
After properly tipping his hat to Facebook’s “breathtaking” growth, he drives into logical fog. For one thing, he tries to turn the growth (now about 125 million active users—double what it was in March) into a negative. He complains that the vast numbers of new international users mostly cannot be “monetized.” It’s true that Internet advertising hasn’t caught on in most countries the way it has in the US (with the exception of countries like Australia, Canada, France, Israel, all of Scandinavia, and the UK, in all of which Facebook is burgeoning). FB is rapidly beefing up its international ad sales operations.
Then Arrington really gets lost, making the absurd statement that “the US market just seems to be tapped at this point,” and adding, “at current growth rates it will take Facebook 18 years to overtake MySpace in the US.” The data he cites, from Web measurement firm ComScore, shows Facebook’s users are up “only” 10 million in the past year—from 31 million to 41 million. That’s a mere 32% annual growth rate, one perhaps only Arrington believes to be paltry. But beyond that, doesn’t your own anecdotal evidence contradict this? I know mine does. Many adult Facebook members are finding that their friends are now cascading into the service.
In addition, another thing comScore recently reported is that Facebook’s total worldwide growth was 153% June to June, while MySpace’s was a mere 3%. And in August measurement firm Hitwise calculated that while total US visits to Facebook were less than 1/3 those to MySpace, Facebook was up 50% over the past year, while MySpace was down 10%. In addition, Hitwise said average time per visit grew 23% for Facebook and only 1% for MySpace.
I predict Facebook will in fact surpass MySpace in US users within two years. Michael—want to bet $100 it will happen?
As for whether Facebook would like to raise more financing, the answer to that is surely yes. So I partially agree with Arrington. But then he opines that it would be “heavily dilutive” to do so at less than the $15 billion valuation that Microsoft (along with Hong Kong billionaire Li Kai-Shing and others) accepted a year ago.
Recall first that that financing was probably the least dilutive round in history, and conferred on Facebook the highest private valuation ever for a VC-funded startup. (Facebook gave up less than 2.5% and raised almost $350 million.) Let’s say it had to sell stock at a valuation half that. There is no way it could be called “heavily dilutive” were Facebook to sell 5% for another $350 million, which even by Arrington’s suspect numbers would give the company another year of smooth sailing.
Finally, he ignores something else that is critical. If Facebook is revenue-challenged, as he carps, it’s only because it has stuck to its guns in not sullying the user experience with inappropriate or intrusive advertising. If you haven’t seen MySpace.com lately, check it out to see the diametrical opposite approach—where everything, it seems, is for sale. Blogger Andrew Chen recently showed what Facebook would look like were it to take a similar approach.
But, hypothetically, say things got really desperate for Facebook. All the company would have to do is move its model incrementally toward MySpace’s to reap lots of additional ad revenue. That’s always a fall-back option, though one I suspect Zuckerberg et al will never take.
Facebook will remain solvent and successful for the foreseeable future.
I am not privy to Facebook’s numbers, sadly. But for my book I’ve been spending a lot of time talking to Facebook executives. The mood at Facebook is hardly one of desperation. There is healthy concern about the consequences of the economic crisis, but a bigger concern remains offering a product and quality of service that enables the hordes converging on Facebook to stay and enjoy it. This company’s resolute focus on users matches any I’ve ever seen.
Arrington notes that Facebook has raised about $500 million, and runs through some highly speculative numbers on how much it costs to run the place. He calculates “a couple hundred million dollars a year just to keep the lights on.” Then he suggests the company may have already spent half of what it has raised.
After properly tipping his hat to Facebook’s “breathtaking” growth, he drives into logical fog. For one thing, he tries to turn the growth (now about 125 million active users—double what it was in March) into a negative. He complains that the vast numbers of new international users mostly cannot be “monetized.” It’s true that Internet advertising hasn’t caught on in most countries the way it has in the US (with the exception of countries like Australia, Canada, France, Israel, all of Scandinavia, and the UK, in all of which Facebook is burgeoning). FB is rapidly beefing up its international ad sales operations.
Then Arrington really gets lost, making the absurd statement that “the US market just seems to be tapped at this point,” and adding, “at current growth rates it will take Facebook 18 years to overtake MySpace in the US.” The data he cites, from Web measurement firm ComScore, shows Facebook’s users are up “only” 10 million in the past year—from 31 million to 41 million. That’s a mere 32% annual growth rate, one perhaps only Arrington believes to be paltry. But beyond that, doesn’t your own anecdotal evidence contradict this? I know mine does. Many adult Facebook members are finding that their friends are now cascading into the service.
In addition, another thing comScore recently reported is that Facebook’s total worldwide growth was 153% June to June, while MySpace’s was a mere 3%. And in August measurement firm Hitwise calculated that while total US visits to Facebook were less than 1/3 those to MySpace, Facebook was up 50% over the past year, while MySpace was down 10%. In addition, Hitwise said average time per visit grew 23% for Facebook and only 1% for MySpace.
I predict Facebook will in fact surpass MySpace in US users within two years. Michael—want to bet $100 it will happen?
As for whether Facebook would like to raise more financing, the answer to that is surely yes. So I partially agree with Arrington. But then he opines that it would be “heavily dilutive” to do so at less than the $15 billion valuation that Microsoft (along with Hong Kong billionaire Li Kai-Shing and others) accepted a year ago.
Recall first that that financing was probably the least dilutive round in history, and conferred on Facebook the highest private valuation ever for a VC-funded startup. (Facebook gave up less than 2.5% and raised almost $350 million.) Let’s say it had to sell stock at a valuation half that. There is no way it could be called “heavily dilutive” were Facebook to sell 5% for another $350 million, which even by Arrington’s suspect numbers would give the company another year of smooth sailing.
Finally, he ignores something else that is critical. If Facebook is revenue-challenged, as he carps, it’s only because it has stuck to its guns in not sullying the user experience with inappropriate or intrusive advertising. If you haven’t seen MySpace.com lately, check it out to see the diametrical opposite approach—where everything, it seems, is for sale. Blogger Andrew Chen recently showed what Facebook would look like were it to take a similar approach.
But, hypothetically, say things got really desperate for Facebook. All the company would have to do is move its model incrementally toward MySpace’s to reap lots of additional ad revenue. That’s always a fall-back option, though one I suspect Zuckerberg et al will never take.
Facebook will remain solvent and successful for the foreseeable future.