Is Facebook worth $100 billion? Yeah, and here’s why:
Displaying all 26 posts by 8 people.
Post #1
5 replies
Lee wroteon July 28, 2007 at 2:49pm
On July 11, 2007 in John Battelle's Search blog (http://battellemedia.com/a
The following is my response to John and the other commenters (I welcome your views on these thoughts):
Facebook at $6 billion would be a HUGE BARGAIN.
I predict that within 24 months a post-IPO Facebook will finally begin to be discovered by the mainstream (i.e., your parents, grandparents, CEOs, etc.) as the world's first social operating system and Facebook (and a few key app developers who wisely get on board early) will be making the kinds of defensible profits that have been reserved for the first dominant graphical operating system (i.e., Windows) and first dominant application suite (i.e., Office).
Comparing Facebook to Google undervalues Facebook!!!
The comparison should be with Microsoft in terms of the lock-in that can be achieved when you control both the operating system and most of the killer apps on the platform. 10% of the population of Canada is now on Facebook and this is just the tip of the iceberg in terms of how the mainstream cross-over from Facebook’s youth/college-oriented past can occur. Every consumer will benefit when all of their friends / family / business acquaintances can be reliably found, researched and touched via the social gestures that Facebook specializes in. This will ensure that Facebook zooms up to the 50% adoption levels in all key demographics that marketers care about and up to the 80% to 90% levels in many areas.
I've been a software entrepreneur whose lived though the OS wars, the GUI wars, the Word processing wars, the Spreadsheet wars, the Application Suite wars, the personal finance wars, the Browser wars and now the Search wars. You'll note that Microsoft leverage their Graphical Operating System dominance to win all but one of those wars. (BTW, kudos to Intuit/Quicken for being the exception that proves the rule.) This is the kind of market power that Facebook will bring to bear as it faces new challengers.
In the case of Microsoft their lock-in was maintained by carefully courting, coaxing, coercing and collaborating with the hardware OEM's and the software ISV's. With Facebook, their lock-in will come from consumers who can't easily decouple themselves from Facebook without giving up their network of friends and with application developers who will have to write for Facebook to reach a critical mass of connected consumers who trust their friends invitations/newsfeeds more than any 3rd party advertsing pitch (e.g., sponsored link) about which new applications/products deserve their attention.
I may sound like someone who owns Facebook stock or is an irrational cheerleader. However, no matter how much I might like to be a Facebook shareholder, the reality is I’m simply someone who is currently making significant personal and business bets on all things Facebook.
As CEO of Altura Ventures – the first VC company that is fully committed to the Facebook platform, I’ve made the decision that our entire investment portfolio will be made up of companies that have a shot at leveraging the coming dominance of Facebook to lay claim to the huge swaths of the virgin application territory that were opened up for an Oklahoma-style land rush the instant the F8 Platform was announced. Our Altura Ventures entrepreneurs plus 80,000+ other developers are now working to fill in every important application area at a pace that no other social network can possibly hope to match.
Why is Facebook more like Microsoft than like Google?
Google's entire business is based on getting people to quickly leave their site (i.e., the outbound click that is their key monetization event). Even their very powerful, 3rd party AdSense network creates the perverse incentive on destination sites of paying them for customers who leave their site. On the other hand, Facebook's entire business is based on bringing larger number of REAL PEOPLE closer to one another than has ever been possible before and keeping them informed about and engaged in one another’s business and lives. Clearly, Facebook’s model has huge lock-in with consumers (just like Microsoft’s) whereas Google’s objective is to push consumers out a toll-gate (where the toll is paid by an advertiser).
Think about it this way: The number of minutes spent per month inside Google viewing Search Results (and ads) shrinks to ZERO at the limit because every search will someday instantly deliver such perfectly ranked results that all you need is a search box and the "I'm Feeling Lucky" button that takes you to the ideal destination page. In this model, you never actually see any google search results (or sponsored links).
Imagine if Microsoft gave Google control over the IE browser search box, URL entry box, and MSN home page BUT made the "SEARCH" button routed the consumer to Google's "I'm Feeling Lucky" destination page. Consumers would win, anti-trust officials would be happy and surprisingly Microsoft would win because Google would lose all its native-site CPC ad revenue. The reason for this is that the very efficiency of their GREAT search algorithm would mean that no consumer would ever even need to see a Google search results page where they might be tempted to click on a Sponsored Link.
I bring this up to contrast this with the reality enjoyed by Microsoft with Windows and Office where consumers live almost entirely on Microsoft-owned real estate at both the OS/desktop and application window levels 100% of the time that they have their PC turned on. This is the type of long term viewing/interacting/connec
How will Facebook monetize their dominant position in the Social OS and App domain?
This is an open question that will be answered in the next 18 to 24 months (pre-IPO). Google was able to leverage GoTo/Overture’s patented bid-based CPC model to create a huge cash engine that the market clearly understood and respected. Had Bill Gross and Overture not licensed this patent to Google on the eve of their IPO, life might have evolved very differently for Google. Likewise, Facebook will be leveraging a new revenue generation model that answers the skeptics’ view that Facebook’s inhabitants aren’t worth as much to marketers as Google’s key word searchers.
So, the interesting questions are not:
Is Facebook worth $6 billion? Or, Is Facebook the next Google?
But, Can Facebook get to be bigger than Microsoft? And if so, When?
My current estimate is that after Facebook's IPO in 24 months and 12 month’s after their post-mainstream adoption, they will be worth $100+ billion and about 25% of the way towards surpassing Microsoft’s OS/App driven valuation.
(c) 2007 Altura Ventures, LLC. (send comments to LeeL@altura.com)
The following is my response to John and the other commenters (I welcome your views on these thoughts):
Facebook at $6 billion would be a HUGE BARGAIN.
I predict that within 24 months a post-IPO Facebook will finally begin to be discovered by the mainstream (i.e., your parents, grandparents, CEOs, etc.) as the world's first social operating system and Facebook (and a few key app developers who wisely get on board early) will be making the kinds of defensible profits that have been reserved for the first dominant graphical operating system (i.e., Windows) and first dominant application suite (i.e., Office).
Comparing Facebook to Google undervalues Facebook!!!
The comparison should be with Microsoft in terms of the lock-in that can be achieved when you control both the operating system and most of the killer apps on the platform. 10% of the population of Canada is now on Facebook and this is just the tip of the iceberg in terms of how the mainstream cross-over from Facebook’s youth/college-oriented past can occur. Every consumer will benefit when all of their friends / family / business acquaintances can be reliably found, researched and touched via the social gestures that Facebook specializes in. This will ensure that Facebook zooms up to the 50% adoption levels in all key demographics that marketers care about and up to the 80% to 90% levels in many areas.
I've been a software entrepreneur whose lived though the OS wars, the GUI wars, the Word processing wars, the Spreadsheet wars, the Application Suite wars, the personal finance wars, the Browser wars and now the Search wars. You'll note that Microsoft leverage their Graphical Operating System dominance to win all but one of those wars. (BTW, kudos to Intuit/Quicken for being the exception that proves the rule.) This is the kind of market power that Facebook will bring to bear as it faces new challengers.
In the case of Microsoft their lock-in was maintained by carefully courting, coaxing, coercing and collaborating with the hardware OEM's and the software ISV's. With Facebook, their lock-in will come from consumers who can't easily decouple themselves from Facebook without giving up their network of friends and with application developers who will have to write for Facebook to reach a critical mass of connected consumers who trust their friends invitations/newsfeeds more than any 3rd party advertsing pitch (e.g., sponsored link) about which new applications/products deserve their attention.
I may sound like someone who owns Facebook stock or is an irrational cheerleader. However, no matter how much I might like to be a Facebook shareholder, the reality is I’m simply someone who is currently making significant personal and business bets on all things Facebook.
As CEO of Altura Ventures – the first VC company that is fully committed to the Facebook platform, I’ve made the decision that our entire investment portfolio will be made up of companies that have a shot at leveraging the coming dominance of Facebook to lay claim to the huge swaths of the virgin application territory that were opened up for an Oklahoma-style land rush the instant the F8 Platform was announced. Our Altura Ventures entrepreneurs plus 80,000+ other developers are now working to fill in every important application area at a pace that no other social network can possibly hope to match.
Why is Facebook more like Microsoft than like Google?
Google's entire business is based on getting people to quickly leave their site (i.e., the outbound click that is their key monetization event). Even their very powerful, 3rd party AdSense network creates the perverse incentive on destination sites of paying them for customers who leave their site. On the other hand, Facebook's entire business is based on bringing larger number of REAL PEOPLE closer to one another than has ever been possible before and keeping them informed about and engaged in one another’s business and lives. Clearly, Facebook’s model has huge lock-in with consumers (just like Microsoft’s) whereas Google’s objective is to push consumers out a toll-gate (where the toll is paid by an advertiser).
Think about it this way: The number of minutes spent per month inside Google viewing Search Results (and ads) shrinks to ZERO at the limit because every search will someday instantly deliver such perfectly ranked results that all you need is a search box and the "I'm Feeling Lucky" button that takes you to the ideal destination page. In this model, you never actually see any google search results (or sponsored links).
Imagine if Microsoft gave Google control over the IE browser search box, URL entry box, and MSN home page BUT made the "SEARCH" button routed the consumer to Google's "I'm Feeling Lucky" destination page. Consumers would win, anti-trust officials would be happy and surprisingly Microsoft would win because Google would lose all its native-site CPC ad revenue. The reason for this is that the very efficiency of their GREAT search algorithm would mean that no consumer would ever even need to see a Google search results page where they might be tempted to click on a Sponsored Link.
I bring this up to contrast this with the reality enjoyed by Microsoft with Windows and Office where consumers live almost entirely on Microsoft-owned real estate at both the OS/desktop and application window levels 100% of the time that they have their PC turned on. This is the type of long term viewing/interacting/connec
How will Facebook monetize their dominant position in the Social OS and App domain?
This is an open question that will be answered in the next 18 to 24 months (pre-IPO). Google was able to leverage GoTo/Overture’s patented bid-based CPC model to create a huge cash engine that the market clearly understood and respected. Had Bill Gross and Overture not licensed this patent to Google on the eve of their IPO, life might have evolved very differently for Google. Likewise, Facebook will be leveraging a new revenue generation model that answers the skeptics’ view that Facebook’s inhabitants aren’t worth as much to marketers as Google’s key word searchers.
So, the interesting questions are not:
Is Facebook worth $6 billion? Or, Is Facebook the next Google?
But, Can Facebook get to be bigger than Microsoft? And if so, When?
My current estimate is that after Facebook's IPO in 24 months and 12 month’s after their post-mainstream adoption, they will be worth $100+ billion and about 25% of the way towards surpassing Microsoft’s OS/App driven valuation.
(c) 2007 Altura Ventures, LLC. (send comments to LeeL@altura.com)
Post #2
Mike replied to Lee's poston July 29, 2007 at 12:16am
I think you're right, and here's why:
As long as Facebook is able to maintain an accurate representation of the offline social graph through their peer-verified identity system, the F8 platform sets the stage for:
- Collections of powerful, personalized trust recommendations systems around every type of content.
- A unified reputation system, accruing accuracy with every peer-to-peer transaction.
- A universal information taxonomy system, powered by collective user intelligence.
Not to mention, unified login and payment systems, which will break significant barriers to entry and use.
Also, we'll start to see systems that usefully extend and integrate into sites and applications that reside outside of Facebook, while funneling users back in.
Facebook's acquisition of Parakey signals their intention to create another layer to the platform which bridges the personal desktop and the social OS, a move that has profound implications.
All things lead back to Facebook.
I think the rate of Facebook's growth and prospects of dominance will depend primarily on: 1) how soon and how well these systems are implemented 2) what moves competitors make or fails to make.
Regarding the latter, Google, Yahoo, Microsoft, AOL, and maybe even MySpace are all in a really good position to release competing social platforms of their own. They all certainly have a massive enough user base to easily entice developers to make their applications cross platform. Whether they have the will and vision to do it in a timely and effective way is another question. I wouldn't be surprised to see worthwhile offerings from Google or Yahoo.
As long as Facebook is able to maintain an accurate representation of the offline social graph through their peer-verified identity system, the F8 platform sets the stage for:
- Collections of powerful, personalized trust recommendations systems around every type of content.
- A unified reputation system, accruing accuracy with every peer-to-peer transaction.
- A universal information taxonomy system, powered by collective user intelligence.
Not to mention, unified login and payment systems, which will break significant barriers to entry and use.
Also, we'll start to see systems that usefully extend and integrate into sites and applications that reside outside of Facebook, while funneling users back in.
Facebook's acquisition of Parakey signals their intention to create another layer to the platform which bridges the personal desktop and the social OS, a move that has profound implications.
All things lead back to Facebook.
I think the rate of Facebook's growth and prospects of dominance will depend primarily on: 1) how soon and how well these systems are implemented 2) what moves competitors make or fails to make.
Regarding the latter, Google, Yahoo, Microsoft, AOL, and maybe even MySpace are all in a really good position to release competing social platforms of their own. They all certainly have a massive enough user base to easily entice developers to make their applications cross platform. Whether they have the will and vision to do it in a timely and effective way is another question. I wouldn't be surprised to see worthwhile offerings from Google or Yahoo.
Post #3
1 reply
Mark wroteon August 2, 2007 at 6:21pm
this analyst pegs FaceBook at $5B to $6B:
http://www.facebook.com/to
(but i doubt if this will stop the dreamers from pegging FB at $100B, $200B, hell, it's worth a billion billion!)
http://www.facebook.com/to
(but i doubt if this will stop the dreamers from pegging FB at $100B, $200B, hell, it's worth a billion billion!)
Post #4
1 reply
Lee replied to Mark's poston August 3, 2007 at 1:36pm
Mark,
So, if Facebook is worth $5B with 30 million users, that puts their value at $166 per user. If they have 50 million users by the end of this year and 100 million by mid 2008 and 200 million by the end of 2008 and 600 million by 2009, then 600 million * 166 = $100 Billion.
See, Facebook is worth $100 billion, just like I told you so.... :)
Here's my reasoning:
Let's assume that each user on Facebook does 12 searches a day and let's assume that Facebook controls all the web Search Boxes on the site. This means that with 600 million users there will be 7.2 billion searches per day. Each of these 7.2 billion keyword searches could possibly show sponsored links and could on average lead to one sponsored link click for every 72 searches performed (BTW, Google's number here is one sponsored link click for every 7 searches).
A typical sponsored link ad costs advertisers a $0.30 CPC. So, if Microsoft is managing the CPC ad sales for Facebook's web search, that equates to $30 million in ad revenue per day to Microsoft or $10.95 billion per year. If Facebook did a good job negotiating with Microsoft, they should be able to retain 20% of this ad revenue or $2.2 billion per year as net revenue to Facebook.
This is $2.2 billion just from CPC ad revenue via their MICROSOFT AD DEAL.
Given that Facebook can still build other sources of non-advertising revenue (e.g., e-commerce, end user services, community taxes on store transactions, overage % rent for stores that set up in the Facebook mall, etc.), it is likely that Facebook's employee and server expense structure can easily be covered by other sources of revenue. So, the entire Google-like CPC ad revenue of $2.2 billion could drop to the Facebook bottom line and be their annual earnings.
Therefore, $2.2 billion in earnings times a 45 PE (post an Oct. 08 IPO) leads to a $100 Billion.
Am I dreaming, but:
Has anyone else noticed that the ONLY RULE for facebook app developers is that you can't do WEB SEARCH FROM THE PROFILE PAGE?
Has anyone else noticed that the only company not doing facebook apps is GOOGLE?
Has anyone else noticed that the Google homepage and iGoogle now has these very FACEBOOK-LIKE application/gadget boxes?
Has anyone else noticed that Google makes a lot of money by being the STARTING POINT for most people's journey onto the web and that this is tied to capturing keyword search terms?
Has anyone else noticed how EASY it would be for Facebook to become the starting point for web searches by simply returning web results in their search results (along with people/groups/events/etc.)
So, to quote John Lennon, "You may say I'm a dreamer, but I'm not the only one."
Thanks,
Lee
So, if Facebook is worth $5B with 30 million users, that puts their value at $166 per user. If they have 50 million users by the end of this year and 100 million by mid 2008 and 200 million by the end of 2008 and 600 million by 2009, then 600 million * 166 = $100 Billion.
See, Facebook is worth $100 billion, just like I told you so.... :)
Here's my reasoning:
Let's assume that each user on Facebook does 12 searches a day and let's assume that Facebook controls all the web Search Boxes on the site. This means that with 600 million users there will be 7.2 billion searches per day. Each of these 7.2 billion keyword searches could possibly show sponsored links and could on average lead to one sponsored link click for every 72 searches performed (BTW, Google's number here is one sponsored link click for every 7 searches).
A typical sponsored link ad costs advertisers a $0.30 CPC. So, if Microsoft is managing the CPC ad sales for Facebook's web search, that equates to $30 million in ad revenue per day to Microsoft or $10.95 billion per year. If Facebook did a good job negotiating with Microsoft, they should be able to retain 20% of this ad revenue or $2.2 billion per year as net revenue to Facebook.
This is $2.2 billion just from CPC ad revenue via their MICROSOFT AD DEAL.
Given that Facebook can still build other sources of non-advertising revenue (e.g., e-commerce, end user services, community taxes on store transactions, overage % rent for stores that set up in the Facebook mall, etc.), it is likely that Facebook's employee and server expense structure can easily be covered by other sources of revenue. So, the entire Google-like CPC ad revenue of $2.2 billion could drop to the Facebook bottom line and be their annual earnings.
Therefore, $2.2 billion in earnings times a 45 PE (post an Oct. 08 IPO) leads to a $100 Billion.
Am I dreaming, but:
Has anyone else noticed that the ONLY RULE for facebook app developers is that you can't do WEB SEARCH FROM THE PROFILE PAGE?
Has anyone else noticed that the only company not doing facebook apps is GOOGLE?
Has anyone else noticed that the Google homepage and iGoogle now has these very FACEBOOK-LIKE application/gadget boxes?
Has anyone else noticed that Google makes a lot of money by being the STARTING POINT for most people's journey onto the web and that this is tied to capturing keyword search terms?
Has anyone else noticed how EASY it would be for Facebook to become the starting point for web searches by simply returning web results in their search results (along with people/groups/events/etc.)
So, to quote John Lennon, "You may say I'm a dreamer, but I'm not the only one."
Thanks,
Lee
Post #5
1 reply
Mark wroteon August 3, 2007 at 1:55pm
"If" FB had 50M users, and "if" FB had 100M users, then imagine IF FB had 200M users..........
if pigs had wings they'd be flyin'
if pigs had wings they'd be flyin'
Post #6
Lee replied to Mark's poston August 3, 2007 at 3:25pm
First, Facebook is no pig.
Second, some pigs do fly without sprouting wings (e.g., http://archive.salon.com/b
Third, here are the real numbers laid out with my extrapolations:
FB Year 1 (Dec. 31) -- 1 million
FB Year 2 (Dec. 31) -- 5 million
FB Year 3 (Dec. 31) -- 12 million
FB Year 4 (Apr. 26) -- 20 million
FB Year 4 (Aug. 1) -- 30 million
FB Year 4 (Dec. 31) -- 50+ million
FB Year 5 (June 6) -- 100+ million
FB Year 5 (Dec. 31) -- 200+ million
I'm so confident that I will bet you $700 or 10 8GB Apple iPhones that I'm right. If I'm being so overly optimistic, please accept the bet here as evidence of your committment and we'll reconvene in Dec. 2008 to see who needs to pay up. If the actual $700 in cash is too rich for you, then I'm doubting you are really convinced I'm wrong. Or, if you just don't like to bet, I'll pay you $700 if I'm wrong if you agree to keep the Virtual iPhone on your Profile Page in the upper left hand corner between now and then. :)
Fourth, you missed my conservative assumptions:
1. 1/10 the level of search to sponsored link ratio
2. Sub $50 million value (which is there current burn rate) for all of the other businesses that Facebook will be in
3. No increase in CPC on facebook which is unlikely because Facebook CPC's and ads will vary based on the demographic knowledge of the users that Facebook has (which Google doesn't)
So, do we have a bet (or are we just talking here)?
Thanks,
Lee
Second, some pigs do fly without sprouting wings (e.g., http://archive.salon.com/b
Third, here are the real numbers laid out with my extrapolations:
FB Year 1 (Dec. 31) -- 1 million
FB Year 2 (Dec. 31) -- 5 million
FB Year 3 (Dec. 31) -- 12 million
FB Year 4 (Apr. 26) -- 20 million
FB Year 4 (Aug. 1) -- 30 million
FB Year 4 (Dec. 31) -- 50+ million
FB Year 5 (June 6) -- 100+ million
FB Year 5 (Dec. 31) -- 200+ million
I'm so confident that I will bet you $700 or 10 8GB Apple iPhones that I'm right. If I'm being so overly optimistic, please accept the bet here as evidence of your committment and we'll reconvene in Dec. 2008 to see who needs to pay up. If the actual $700 in cash is too rich for you, then I'm doubting you are really convinced I'm wrong. Or, if you just don't like to bet, I'll pay you $700 if I'm wrong if you agree to keep the Virtual iPhone on your Profile Page in the upper left hand corner between now and then. :)
Fourth, you missed my conservative assumptions:
1. 1/10 the level of search to sponsored link ratio
2. Sub $50 million value (which is there current burn rate) for all of the other businesses that Facebook will be in
3. No increase in CPC on facebook which is unlikely because Facebook CPC's and ads will vary based on the demographic knowledge of the users that Facebook has (which Google doesn't)
So, do we have a bet (or are we just talking here)?
Thanks,
Lee
Post #7
1 reply
Zachary replied to Lee's poston August 3, 2007 at 3:26pm
I have a few questions.
1. Is twelve searches per day a massive assumption, even if they are routing all their searches from Google/Yahoo/Ask to Facebook?
2. Only a percentage of Facebook's users log in every day.
3. Isn't Microsoft losing money left and right on this ad deal?
4. I highly doubt high schoolers and college students are worth .30 cpc
5. Facebook's success as a brand is far from assured due to problems with privacy management
6. More on brand management: Some people have called Facebook a massive spyware company. I don't want to be sued for defamation, but I suggest you read their privacy policies some time.
7. For $160, you could buy a laptop and give it to the user on the condition that they fill out a web profile -- and people would do it. Are there any implications for this?
1. Is twelve searches per day a massive assumption, even if they are routing all their searches from Google/Yahoo/Ask to Facebook?
2. Only a percentage of Facebook's users log in every day.
3. Isn't Microsoft losing money left and right on this ad deal?
4. I highly doubt high schoolers and college students are worth .30 cpc
5. Facebook's success as a brand is far from assured due to problems with privacy management
6. More on brand management: Some people have called Facebook a massive spyware company. I don't want to be sued for defamation, but I suggest you read their privacy policies some time.
7. For $160, you could buy a laptop and give it to the user on the condition that they fill out a web profile -- and people would do it. Are there any implications for this?
Post #8
1 reply
Lee replied to Zachary's poston August 3, 2007 at 4:16pm
1. People in Facebook today already do WAY MORE than 12 searches per day. The key is that today most of these searches relate to finding friends or groups or apps or other things that you can search for in facebook. This will change when Facebook's search returns somethng other than friends, etc. If facebook returned web search results (or if there were two search boxes -- one for Facebook site and one for Rest of Web), then users would have ZERO incentive to leave facebook to initiate a Google search. If Microsoft just put sponsored links at the bottom of the Facebook ZERO RESULTS page along with a Search the Web box, the number of daily web searches and CPC revenue would be significant. (NOTE: if Microsoft is listening, please ensure that these sponsored links launch daughter windows that are smaller and offset from the Facebook window so the facebook user knows that they can still tell that they haven't lost their place in Facebook).
2. Facebook's numbers are based on "Active Users in the last 30 days". I'm guessing that the daily percentage of these users is way higher than 50% because people need to check it at least as often as they check e-mail. My e-mail also pushes me into facebook whenever I've got something to do. In addition, if Facebook had a "Make Facebook Your Home Page" feature then they would get a visit from every user every day and their Left hand Nav (ALWAYS PRESENT) search box would take the place of Google's only present on the home page search box (and not on the destination page that Google links to).
3. I can't imagine Microsoft is losing money on their Facebook ad deal since they already have an ad sales force, an ad serving infrastructure and their current facebook ad inventory is just sopping up their run-of-site ad deals for tons of advertisers who have products appealing to the current facebook demographic groups. So, Microsoft is making money on this ad deal!!! Assuming they pre-paid for the right to sell ads on Facebook, wouldn't the right question be will Facebook deliver enough revenue to Microsoft fast enough to consume their ad prepayment prior to the expiration of the ad deal. My answer to this would be almost certainly and if they haven't, I'm sure Microsoft has a clause in the deal where it will be extended until Facebook has not only exhausted the pre-paid amount but probably some multiple of it. Bill and Steve have negotiated with a few other folks before in their lives and I highly doubt they would have left this clause out. Or, they put even a better one in for what happens if Facebook can't deliver on the ad sales earn-out.
4. You're right, high schoolers and college students aren't worth $0.30 (which is Google's average monetization rate) they are worth WAY MORE than $0.30 simply because the advertisers will know that they are showing their ad to and bidding different amounts for high schoolers who like punk rock music and loved the movie Lord of the Rings and live in Detroit and are going to college and have 380 friends who pay attention to what they wear, drink, drive, eat, etc. What do google's advertisers know about the "users" who click on their Google blind-to-who-the-user-is sponsored link ads? Only that about 10% to 30% are likely CPC Click-Fraud bots running blindly through the sites that they've been assigned to visit. So, you're right, a $0.30 average CPC rate for Facebook's keyword-driven web search results page is too conservative a number.
5. The privacy argument is over for Facebook. 30 million high schoolers, college students and grad students have voted with their mice and adopted the platform because that like the level of openness (with appropriate privacy controls) that it offers. And Facebook will win the SAFE FOR FAMILIES AND COMPANIES brand competition because they do a much better job than MySpace about keeping predators out and keeping the non-family friendly advertisers away.
6. I've read the Facebook privacy polcies and I've read Google's (althogh 99.999999% of users of these sites have not). The reality is that Google knows much more intimate details about you and me because they know every web site search I've ever made and ever web site I've linked to from Google. They also know that if they tell this information to anyone or use it in a way to hurt even one of their users (who is not a criminal or sexual predator or terrorist) that their entire brand will be at risk. Is it worth Google's $175 Billion market cap to let Lee Lorenzen's searches be publicized or used inappropriately? The bottom line is that all the information on my Facebook profile page could be built up in a day or two by any savvy private investigator and published in the local paper without me freaking out. Could you or I say the same about Google's knowledge of our past 10,000 searches or IE/Firefox/Safari's knowledge of our past 10,000 web site visits? So, people may call something spyware but most will still use it and invest in it if it will make them money.
7. Someone, I think Bill Gross tried this, but it didn't work because the folks who wanted a $160 PC weren't that interesting to advertisers or willing to fill in a continuously accurate profile of who they were, who their friends were and what they were doing online. Clearly, only folks with almost no other access to a PC are going to put all the work that you or I have put into our Facebook profile and no one is going to list all of their friends, top friends, etc. just for a Free PC. The bottom line is that marketers want folks who they know tons about but where the folks had no direct incentive to provide this information or to falsify this information. The genius of Facebook is that because of its origin as a college-based, friend-verified, e-mail validated social network they established an ethic of truthfulness amongst a demographic with high earning power that no other social network as ever been able to come close to matching.
Those are my short answers. I hope that helps. Are you ready to join me in my bet with Mark Mayhew?
Thanks,
Lee
2. Facebook's numbers are based on "Active Users in the last 30 days". I'm guessing that the daily percentage of these users is way higher than 50% because people need to check it at least as often as they check e-mail. My e-mail also pushes me into facebook whenever I've got something to do. In addition, if Facebook had a "Make Facebook Your Home Page" feature then they would get a visit from every user every day and their Left hand Nav (ALWAYS PRESENT) search box would take the place of Google's only present on the home page search box (and not on the destination page that Google links to).
3. I can't imagine Microsoft is losing money on their Facebook ad deal since they already have an ad sales force, an ad serving infrastructure and their current facebook ad inventory is just sopping up their run-of-site ad deals for tons of advertisers who have products appealing to the current facebook demographic groups. So, Microsoft is making money on this ad deal!!! Assuming they pre-paid for the right to sell ads on Facebook, wouldn't the right question be will Facebook deliver enough revenue to Microsoft fast enough to consume their ad prepayment prior to the expiration of the ad deal. My answer to this would be almost certainly and if they haven't, I'm sure Microsoft has a clause in the deal where it will be extended until Facebook has not only exhausted the pre-paid amount but probably some multiple of it. Bill and Steve have negotiated with a few other folks before in their lives and I highly doubt they would have left this clause out. Or, they put even a better one in for what happens if Facebook can't deliver on the ad sales earn-out.
4. You're right, high schoolers and college students aren't worth $0.30 (which is Google's average monetization rate) they are worth WAY MORE than $0.30 simply because the advertisers will know that they are showing their ad to and bidding different amounts for high schoolers who like punk rock music and loved the movie Lord of the Rings and live in Detroit and are going to college and have 380 friends who pay attention to what they wear, drink, drive, eat, etc. What do google's advertisers know about the "users" who click on their Google blind-to-who-the-user-is sponsored link ads? Only that about 10% to 30% are likely CPC Click-Fraud bots running blindly through the sites that they've been assigned to visit. So, you're right, a $0.30 average CPC rate for Facebook's keyword-driven web search results page is too conservative a number.
5. The privacy argument is over for Facebook. 30 million high schoolers, college students and grad students have voted with their mice and adopted the platform because that like the level of openness (with appropriate privacy controls) that it offers. And Facebook will win the SAFE FOR FAMILIES AND COMPANIES brand competition because they do a much better job than MySpace about keeping predators out and keeping the non-family friendly advertisers away.
6. I've read the Facebook privacy polcies and I've read Google's (althogh 99.999999% of users of these sites have not). The reality is that Google knows much more intimate details about you and me because they know every web site search I've ever made and ever web site I've linked to from Google. They also know that if they tell this information to anyone or use it in a way to hurt even one of their users (who is not a criminal or sexual predator or terrorist) that their entire brand will be at risk. Is it worth Google's $175 Billion market cap to let Lee Lorenzen's searches be publicized or used inappropriately? The bottom line is that all the information on my Facebook profile page could be built up in a day or two by any savvy private investigator and published in the local paper without me freaking out. Could you or I say the same about Google's knowledge of our past 10,000 searches or IE/Firefox/Safari's knowledge of our past 10,000 web site visits? So, people may call something spyware but most will still use it and invest in it if it will make them money.
7. Someone, I think Bill Gross tried this, but it didn't work because the folks who wanted a $160 PC weren't that interesting to advertisers or willing to fill in a continuously accurate profile of who they were, who their friends were and what they were doing online. Clearly, only folks with almost no other access to a PC are going to put all the work that you or I have put into our Facebook profile and no one is going to list all of their friends, top friends, etc. just for a Free PC. The bottom line is that marketers want folks who they know tons about but where the folks had no direct incentive to provide this information or to falsify this information. The genius of Facebook is that because of its origin as a college-based, friend-verified, e-mail validated social network they established an ethic of truthfulness amongst a demographic with high earning power that no other social network as ever been able to come close to matching.
Those are my short answers. I hope that helps. Are you ready to join me in my bet with Mark Mayhew?
Thanks,
Lee
Post #9
1 reply
Zachary replied to Lee's poston August 3, 2007 at 4:37pm
http://valleywag.com/tech/
1. MSFT is losing money on the Facebook advertising deal.
2. High schoolers and college students do not bring high eCPMs; they just don't have any disposable income.
3. Truly targeted advertising is a ways off and has yet to be proven to sufficiently raise eCPMs.
4. Users *just aren't clicking* on the ads.
1. MSFT is losing money on the Facebook advertising deal.
2. High schoolers and college students do not bring high eCPMs; they just don't have any disposable income.
3. Truly targeted advertising is a ways off and has yet to be proven to sufficiently raise eCPMs.
4. Users *just aren't clicking* on the ads.
Post #10
Lee replied to Zachary's poston August 3, 2007 at 10:23pm
Zachary,
Now that I know the source of the questions, I'll post the same comments on Nick Denton's blog shortly so he can defend his incorrect and unsubstantiated statements.
1. Nick says, "Microsoft must be losing money on the Facebook deal":
==========================
Well, I think Nick would agree that Microsoft has ZERO incremental costs associated with deploying CPM and CPC ads on the Facebook real estate (since they already have a very sizeable ad sales force and ad serving system that is currently operating at less than peak capacity). I also believe it is safe to assume that some ads are being sold (because you and I see them when we use Facebook and as Nick's article points out some Media Buyers are paying to test them). Therefore, Microsoft makes money on the Facebook deal because $_____ worth of Ad Sales - $0.00 worth of Ad Costs = $____ of Ad Revenue for Microsoft.
Nick falsely assumes that Microsoft will lose whatever their pre-pay on the ad deal was if they don't make it back before the deal expires. Perhaps that is how Nick would have negotiated the deal but as I said, there is NO WAY Microsoft's exclusive on Facebook will end without them recovering some multiple (1x, 2x, 3x) of their pre-paid ad deal. To believe otherwise is to say that Bill Gates and Steve Ballmer are either naive, stupid, asleep or not worried about their shareholder's money. I'm 100% sure that Microsoft's deal will not lapse until their pre-payment is more than recovered.
So, the only questions are:
1. Will there be enough advertising demand to soak up all of the facebook ad inventory?
2. Will facebook advertisers pay enough for these ads?
On both counts, I believe the answer is yes.
Although Facebook has virtually an infinite numbers of page views, the Microsoft ad system can probably take whatever number of advertisers they have (i.e., 20,000???) and find enough ads to show in such a way that a given consumer won't have to see the same ads over and over again. So, Microsoft will be able to sell out all of the run-of-site ads that facebook enjoys. If they couldn't do this themselves, then their aQuantive acquisition will guarantee it.
Facebook has around 100 billion page views per month (See http://www.techcrunch.com/
Will facebook advertisers pay at least $0.20 Run-of-Site CPM rate -- you betcha. At a 0.04% CPM banner click-thru rate, that works out to about $0.50 per click. The very fact that most Facebook users don't click on these ads actually makes them attractive to brand advertisers because those who do click are likely serious potential customers which means that they will be more likely to convert to a buyer when they arrive at the advertiser's site. So, Nick's data is only looking at a tiny piece of the picture and most SMART media buyers will analyze their facebook performance based on their effect CPA not their click-thru rate.
2. Nick says: "High schoolers and college students do not bring high eCPMs; they just don't have any disposable income."
==========================
Perhaps Nick could explain why there seem to be so many ads on Saturday morning TV, when mom and dad are likely still sleeping and the resident non-drivers are watching TV. Clearly these non-driving students and pre-schoolers have limited disposable income and by Nick's reasoning should be WORTHLESS to advertisers. Apparently, Nick believes that if you don't whip out a credit card and check out right now you are not worthy of being influenced by ads. I'm just guessing here but either Nick has no kids of any age or Nick's wife does all of the shopping and Nick's kids know that it is a waste of time to talk to Nick about what needs to be purchased.
3. Nick says: Truly targeted advertising is a ways off and has yet to be proven to sufficiently raise eCPMs.
==========================
First off, let's take the position that targeted advertising NEVER WORKS and you are stuck with run-of-site CPM ad rates of $0.20 and very low click-thru rates. There will still be plenty of advertisers lining up because of their is some residual, but hard to measure and attribute, value to brand impressions. You can know this is true by putting yourself in the position of a brand advertiser at a P&G or Coke or Mcdonalds who has a new product to intoduce to the market and picking one of these two campaigns (which each cost the same amount and resulted in the same number of direct link-thru sales off of your web site):
1. 999,600 page views plus 400 clicks (00.04% CTR) == $200 cost for 10 new buyers
2. 4,000 page views plus 400 clicks (10.00% CTR) == $200 cost for 10 new buyers
Clearly, every marketer will pick #1 because they know in their heart that their is some value to 1 million ad views. For example, my subconscious has been staring at a "Kat DeLuna" music ad while I type this post. I don't know who she is but if I see her on Oprah or hear her name on the radio or see the same ad in a magazine, some part of my lizard brain that decides what might be important will clue me in that this "Kat DeLuna" person deserves some conscious thought.
Secondly, it is easy to prove that targetting does result in higher CPM's. Let's take the simplist form of targeting based on gender (which by the way is something that Google can't do without violating the Terms of Service and attempt to infer that I'm a male based on the cummulative set of sites I visit), and grant that Facebook/Microsoft could easily implement an ad system that decided based on the user's gender whether to show them the "beer, football, condom" ads or the "food, fashion, pregnancy test" ads.
If you accept that advertisers will pay $0.20 for untargetted ads, then for highly gender-specific products (i.e., MOST PRODUCTS), wouldn't it make sense that the CPM rate would have to double to $0.40 because the advertiser is no longer wasting half of their ads? I think even Nick would agree that this is sound reasoning. Extrapolating this to REGIONALLY targetted ads or AGE targetted ads and I think you can see that CPM's have to rise and that no other company on the planet has the kind of granularity of user-provided, friend-verified personalized profile.
4. Nick says" "Users just aren't clicking on the ads"
==========================
Well, if these were CPC ads, then that would be a disaster for Microsoft/Facebook. However, with CPM ads, it is not that bad a situation as long as advertisers will pay at least $0.20 CPM's. Since we see ads and a $0.20 CPM is not that bad a rate for pure brand building, I don't thnk either Microsoft or Facebook are overly concerned about the lack of clicking on their ads.
The BIG OPPORTUNITY in the offing will be when Facebook/Microsoft introduce web search onto the profile page. These google-like, keyword-driven, highly relevant, bid-based CPC ads will have the same or higher Click-thru rate as on Google and will likely convert at a higher level due to the additional targeting data that will influence the CPC rates on Facebook to be higher than on Google (for the same demographic group).
In conclusion:
=========
I hope my answers to your (and Nick's) questions have convinced you. However, if I haven't, then I'm happy to bet you the same $700 or 10 8GB Apple iPhones as I'm betting Mark, that the traffic will come and Microsoft will consume their ad pre-pay before the deal ends. Are you interested in taking me up on the bet?
Thanks,
Lee Lorenzen
Now that I know the source of the questions, I'll post the same comments on Nick Denton's blog shortly so he can defend his incorrect and unsubstantiated statements.
1. Nick says, "Microsoft must be losing money on the Facebook deal":
==========================
Well, I think Nick would agree that Microsoft has ZERO incremental costs associated with deploying CPM and CPC ads on the Facebook real estate (since they already have a very sizeable ad sales force and ad serving system that is currently operating at less than peak capacity). I also believe it is safe to assume that some ads are being sold (because you and I see them when we use Facebook and as Nick's article points out some Media Buyers are paying to test them). Therefore, Microsoft makes money on the Facebook deal because $_____ worth of Ad Sales - $0.00 worth of Ad Costs = $____ of Ad Revenue for Microsoft.
Nick falsely assumes that Microsoft will lose whatever their pre-pay on the ad deal was if they don't make it back before the deal expires. Perhaps that is how Nick would have negotiated the deal but as I said, there is NO WAY Microsoft's exclusive on Facebook will end without them recovering some multiple (1x, 2x, 3x) of their pre-paid ad deal. To believe otherwise is to say that Bill Gates and Steve Ballmer are either naive, stupid, asleep or not worried about their shareholder's money. I'm 100% sure that Microsoft's deal will not lapse until their pre-payment is more than recovered.
So, the only questions are:
1. Will there be enough advertising demand to soak up all of the facebook ad inventory?
2. Will facebook advertisers pay enough for these ads?
On both counts, I believe the answer is yes.
Although Facebook has virtually an infinite numbers of page views, the Microsoft ad system can probably take whatever number of advertisers they have (i.e., 20,000???) and find enough ads to show in such a way that a given consumer won't have to see the same ads over and over again. So, Microsoft will be able to sell out all of the run-of-site ads that facebook enjoys. If they couldn't do this themselves, then their aQuantive acquisition will guarantee it.
Facebook has around 100 billion page views per month (See http://www.techcrunch.com/
Will facebook advertisers pay at least $0.20 Run-of-Site CPM rate -- you betcha. At a 0.04% CPM banner click-thru rate, that works out to about $0.50 per click. The very fact that most Facebook users don't click on these ads actually makes them attractive to brand advertisers because those who do click are likely serious potential customers which means that they will be more likely to convert to a buyer when they arrive at the advertiser's site. So, Nick's data is only looking at a tiny piece of the picture and most SMART media buyers will analyze their facebook performance based on their effect CPA not their click-thru rate.
2. Nick says: "High schoolers and college students do not bring high eCPMs; they just don't have any disposable income."
==========================
Perhaps Nick could explain why there seem to be so many ads on Saturday morning TV, when mom and dad are likely still sleeping and the resident non-drivers are watching TV. Clearly these non-driving students and pre-schoolers have limited disposable income and by Nick's reasoning should be WORTHLESS to advertisers. Apparently, Nick believes that if you don't whip out a credit card and check out right now you are not worthy of being influenced by ads. I'm just guessing here but either Nick has no kids of any age or Nick's wife does all of the shopping and Nick's kids know that it is a waste of time to talk to Nick about what needs to be purchased.
3. Nick says: Truly targeted advertising is a ways off and has yet to be proven to sufficiently raise eCPMs.
==========================
First off, let's take the position that targeted advertising NEVER WORKS and you are stuck with run-of-site CPM ad rates of $0.20 and very low click-thru rates. There will still be plenty of advertisers lining up because of their is some residual, but hard to measure and attribute, value to brand impressions. You can know this is true by putting yourself in the position of a brand advertiser at a P&G or Coke or Mcdonalds who has a new product to intoduce to the market and picking one of these two campaigns (which each cost the same amount and resulted in the same number of direct link-thru sales off of your web site):
1. 999,600 page views plus 400 clicks (00.04% CTR) == $200 cost for 10 new buyers
2. 4,000 page views plus 400 clicks (10.00% CTR) == $200 cost for 10 new buyers
Clearly, every marketer will pick #1 because they know in their heart that their is some value to 1 million ad views. For example, my subconscious has been staring at a "Kat DeLuna" music ad while I type this post. I don't know who she is but if I see her on Oprah or hear her name on the radio or see the same ad in a magazine, some part of my lizard brain that decides what might be important will clue me in that this "Kat DeLuna" person deserves some conscious thought.
Secondly, it is easy to prove that targetting does result in higher CPM's. Let's take the simplist form of targeting based on gender (which by the way is something that Google can't do without violating the Terms of Service and attempt to infer that I'm a male based on the cummulative set of sites I visit), and grant that Facebook/Microsoft could easily implement an ad system that decided based on the user's gender whether to show them the "beer, football, condom" ads or the "food, fashion, pregnancy test" ads.
If you accept that advertisers will pay $0.20 for untargetted ads, then for highly gender-specific products (i.e., MOST PRODUCTS), wouldn't it make sense that the CPM rate would have to double to $0.40 because the advertiser is no longer wasting half of their ads? I think even Nick would agree that this is sound reasoning. Extrapolating this to REGIONALLY targetted ads or AGE targetted ads and I think you can see that CPM's have to rise and that no other company on the planet has the kind of granularity of user-provided, friend-verified personalized profile.
4. Nick says" "Users just aren't clicking on the ads"
==========================
Well, if these were CPC ads, then that would be a disaster for Microsoft/Facebook. However, with CPM ads, it is not that bad a situation as long as advertisers will pay at least $0.20 CPM's. Since we see ads and a $0.20 CPM is not that bad a rate for pure brand building, I don't thnk either Microsoft or Facebook are overly concerned about the lack of clicking on their ads.
The BIG OPPORTUNITY in the offing will be when Facebook/Microsoft introduce web search onto the profile page. These google-like, keyword-driven, highly relevant, bid-based CPC ads will have the same or higher Click-thru rate as on Google and will likely convert at a higher level due to the additional targeting data that will influence the CPC rates on Facebook to be higher than on Google (for the same demographic group).
In conclusion:
=========
I hope my answers to your (and Nick's) questions have convinced you. However, if I haven't, then I'm happy to bet you the same $700 or 10 8GB Apple iPhones as I'm betting Mark, that the traffic will come and Microsoft will consume their ad pre-pay before the deal ends. Are you interested in taking me up on the bet?
Thanks,
Lee Lorenzen
Post #11
2 replies
Mark wroteon August 3, 2007 at 11:40pm
if FB were worth anything close to $100B, then wtf is Mark Zuckerberg doing sitting down and having meetings w/Yahoo last year, and he knew damn good and well that they were going to be offerin' him, maybe, $1B? Granted, he declined, but the fact remains that he entertained a $1B offer.
Post #12
Lee replied to Mark's poston August 4, 2007 at 2:06am
Mark,
First of all, there is no harm in entertaining offers and he couldn't have known what they were going to offer.
Second of all, this strategy of shopping the company could have been to push some other party into acting WRT getting really favorable terms in an ad deal.
Third of all, this was before the platform strategy was successfully launched and if you take MarkZ at his word, no one in facebook thought it would catch on with developers and users as fast as it has.
Thanks,
Lee
First of all, there is no harm in entertaining offers and he couldn't have known what they were going to offer.
Second of all, this strategy of shopping the company could have been to push some other party into acting WRT getting really favorable terms in an ad deal.
Third of all, this was before the platform strategy was successfully launched and if you take MarkZ at his word, no one in facebook thought it would catch on with developers and users as fast as it has.
Thanks,
Lee
Post #13
1 reply
Darrell replied to Lee's poston August 5, 2007 at 11:46am
The FB to MS comparison is craziness. MS charges for its platform while FB cannot do so. Even if FB manages to iterate the browser into a sharing tool, monetization at the level of MS is a tall order for a company that has to give away the product roughly for free.
The FB value is great; they have the opportunity to target better than anyone and a user base that will accept a reasonable amount of advertising. However, this edge is not a given; save some altogether new monetization technique for "the graph", they'll have to do what Google is trying to do with personalized search, which is really a pretty tall (and exciting) order.
The FB value is great; they have the opportunity to target better than anyone and a user base that will accept a reasonable amount of advertising. However, this edge is not a given; save some altogether new monetization technique for "the graph", they'll have to do what Google is trying to do with personalized search, which is really a pretty tall (and exciting) order.
Post #14
1 reply
Lee replied to Darrell's poston August 5, 2007 at 3:46pm
Darrell,
Monetization doesn't require hardware OEM's to pay for the operating system or for end users to pay for the applications. This was the model that Microsoft developed and has continued to optimize get to their present $275 Billion market cap. However, the web of inter-connected users that the web has enabled and the HUGE amount of time that these users spend looking at their computer screen vs. their TV screen, has opened up a number of new monetization models.
You can tell this is true because Google has a $156 Billion market cap and they give away their product (i.e., search results), run on a browser that Microsoft controls and gives away for free and have no product to sell consumers. Their Cost Per Click monetization model has been rewarded by 100,000+ 3rd party advertisers (i.e., their customers) and the market to the tune of $175 billion market cap.
In addition, if you look at e-commerce as a monetization method (vs. advertising), EBAY has a $45 billion market cap and they have no product other than the marketplace where buyer and seller can meet and the bidding and rating information that they arbitrate between their buyers and sellers.
The comparison between FB's Social Operating System and MS's Graphical Operating System that I'm drawing is at a level of user adoption, developer support and market dominance. 30 million users (growing to 200 million by Dec. 2008) have picked facebook as their preferred site to trust with their profile data and to connect with their friends. These users are attracting hoards of developers who will help make facebook even more compelling for the users. This starts the kind of virtuous cycle that MS Windows enjoyed when in 1995 the platform was finally solid enough to attract enough users to in turn attract even more developers. Once this type of thing starts it is very hard to stop (even with anti-Microsoft cabals and the help of government anti-trust lawyers).
As described earlier, Facebook has a shot at the level of advertising revenue that Google enjoys without the need to build their own ad sales force (since they are leveraging Microsoft's). They also have a shot at the level of e-commerce revenue that Ebay and Amazon enjoy.
If Facebook were to acquire SHOP.COM (which in the way of an editorial note, the reader should know that I own 20% of), they would instantly have a 40 person engineering team that has built the world's first and best multi-vendor, virtual inventory, patented OneCart shopping system.
SHOP.COM receives an average of a 15% commission on all sales that take place in its mall and has 1,200+ cataloger, retailers and e-tailers. Facebook consumers would enjoy access to 10+ million products without ever leaving Facebook. Imagine if Facebook suddenly had a true OneCart mall that was fully integrated into Facebook (powered by SHOP.COM which would be a wholly owned subsidiary). This would lead to 30 million new shoppers for SHOP.COM within Facebook which would lead to 100% merchant adoption of SHOP.COM which would lead to massive numbers of non-Facebook users buying from the SHOP.COM site directly. How much bigger than eBay would this Facebook-owned SHOP.COM site be given that the RETAIL New Product fixed price market is at least 20x as big as the CLASSIFIED/AUCTION Used Product variable price market? Remember that eBay only earns 7% per transaction whereas SHOP.COM earns 15% (so there's another double over eBay).
So, monetization seems easy once you have the loyal users which Facebook has in spades.
In addition, Altura Ventures is investing in a company beyond SHOP.COM that will be offering a new monetization technique that leverages "the social graph." However, I can't discuss that.
Thanks,
Lee
Monetization doesn't require hardware OEM's to pay for the operating system or for end users to pay for the applications. This was the model that Microsoft developed and has continued to optimize get to their present $275 Billion market cap. However, the web of inter-connected users that the web has enabled and the HUGE amount of time that these users spend looking at their computer screen vs. their TV screen, has opened up a number of new monetization models.
You can tell this is true because Google has a $156 Billion market cap and they give away their product (i.e., search results), run on a browser that Microsoft controls and gives away for free and have no product to sell consumers. Their Cost Per Click monetization model has been rewarded by 100,000+ 3rd party advertisers (i.e., their customers) and the market to the tune of $175 billion market cap.
In addition, if you look at e-commerce as a monetization method (vs. advertising), EBAY has a $45 billion market cap and they have no product other than the marketplace where buyer and seller can meet and the bidding and rating information that they arbitrate between their buyers and sellers.
The comparison between FB's Social Operating System and MS's Graphical Operating System that I'm drawing is at a level of user adoption, developer support and market dominance. 30 million users (growing to 200 million by Dec. 2008) have picked facebook as their preferred site to trust with their profile data and to connect with their friends. These users are attracting hoards of developers who will help make facebook even more compelling for the users. This starts the kind of virtuous cycle that MS Windows enjoyed when in 1995 the platform was finally solid enough to attract enough users to in turn attract even more developers. Once this type of thing starts it is very hard to stop (even with anti-Microsoft cabals and the help of government anti-trust lawyers).
As described earlier, Facebook has a shot at the level of advertising revenue that Google enjoys without the need to build their own ad sales force (since they are leveraging Microsoft's). They also have a shot at the level of e-commerce revenue that Ebay and Amazon enjoy.
If Facebook were to acquire SHOP.COM (which in the way of an editorial note, the reader should know that I own 20% of), they would instantly have a 40 person engineering team that has built the world's first and best multi-vendor, virtual inventory, patented OneCart shopping system.
SHOP.COM receives an average of a 15% commission on all sales that take place in its mall and has 1,200+ cataloger, retailers and e-tailers. Facebook consumers would enjoy access to 10+ million products without ever leaving Facebook. Imagine if Facebook suddenly had a true OneCart mall that was fully integrated into Facebook (powered by SHOP.COM which would be a wholly owned subsidiary). This would lead to 30 million new shoppers for SHOP.COM within Facebook which would lead to 100% merchant adoption of SHOP.COM which would lead to massive numbers of non-Facebook users buying from the SHOP.COM site directly. How much bigger than eBay would this Facebook-owned SHOP.COM site be given that the RETAIL New Product fixed price market is at least 20x as big as the CLASSIFIED/AUCTION Used Product variable price market? Remember that eBay only earns 7% per transaction whereas SHOP.COM earns 15% (so there's another double over eBay).
So, monetization seems easy once you have the loyal users which Facebook has in spades.
In addition, Altura Ventures is investing in a company beyond SHOP.COM that will be offering a new monetization technique that leverages "the social graph." However, I can't discuss that.
Thanks,
Lee
Post #15
1 reply
Kien wroteon August 10, 2007 at 11:31pm
Ummmm lets get back to val;uation principles and methodology please.
Is Facebook worth One Hundred Billion Dollahs, Ok Dr Evil, wrong scene., don't get too excited now (not referring to Lee, but Austin Powers movie).
Valuation can be achieved as such
Net Present Value, as a function of the future free cash flow of the company. Has Facebook started taxing the apps yet? Is it going to be run like a government taxation plan leading to cash revenues. Well, I see the successful apps making money *dude, I hope you are* but most aren't and most are forking out money to run their host servers. By that same philosophy, is it ok if some of us took a deferred tax liability cos we're losing money here.
Comparables
Public Comparables - Comparing Facebook with Microsoft. When one says something like that its not how the product both look and smell kinda alike, but the profit margins, the lines of businesses. I don't know if I can equate an API with Windows and all the apps as PC software... cos it fits a lot of networks (private as well)
Then if you feel that the lines of businesses are the same, you apply a valuation multiple, which you compare with the rest of the industry, match it with each company's growth rate, then decide, what number you want to apply Facebook's EBITDA or Net Income by, to get some gauge of what the paper/stock of Facebook would be if it were public.
Microsoft's P/E is 20. Lets give Facebook twice that amount 40. $100billion divide by 40 = $2.5billion. Wow, Facebook is going to make $2.5billion in net income just by u poking me and I drawing graffiti on your wall. I dunno, $100billion is a superlative (props to the Developer!) maybe, then it does capture an exuberance, but going by real financial valuation, it is not.
Is Facebook worth One Hundred Billion Dollahs, Ok Dr Evil, wrong scene., don't get too excited now (not referring to Lee, but Austin Powers movie).
Valuation can be achieved as such
Net Present Value, as a function of the future free cash flow of the company. Has Facebook started taxing the apps yet? Is it going to be run like a government taxation plan leading to cash revenues. Well, I see the successful apps making money *dude, I hope you are* but most aren't and most are forking out money to run their host servers. By that same philosophy, is it ok if some of us took a deferred tax liability cos we're losing money here.
Comparables
Public Comparables - Comparing Facebook with Microsoft. When one says something like that its not how the product both look and smell kinda alike, but the profit margins, the lines of businesses. I don't know if I can equate an API with Windows and all the apps as PC software... cos it fits a lot of networks (private as well)
Then if you feel that the lines of businesses are the same, you apply a valuation multiple, which you compare with the rest of the industry, match it with each company's growth rate, then decide, what number you want to apply Facebook's EBITDA or Net Income by, to get some gauge of what the paper/stock of Facebook would be if it were public.
Microsoft's P/E is 20. Lets give Facebook twice that amount 40. $100billion divide by 40 = $2.5billion. Wow, Facebook is going to make $2.5billion in net income just by u poking me and I drawing graffiti on your wall. I dunno, $100billion is a superlative (props to the Developer!) maybe, then it does capture an exuberance, but going by real financial valuation, it is not.
Post #16
1 reply
Kien replied to Lee's poston August 10, 2007 at 11:40pm
So pls correct me if I'm wrong. You are coming in promising of large investments but in the meantime asking developers to show you their apps as you run sds on them.
Then when Favebook acquires Shop.com, you will be a equity owner of the company (if they buy with stock) but even if they don't you might still be involved in running it or overishgt.
So Pro Forma, in that scenario, you want to control or help the development of apps, make money advertising off the apps and also direct that advertising and ultimately ecommerce towards shop.com. Wow, you've practically captured the whole value chain here.
So only if the apps help your cause and enable your mechanism would they be helped with advertising, which you pay... facebook, which you get back when you charge back advertisers for ads, and then the users for buying stuff off the site.
Its a great plan.
Then when Favebook acquires Shop.com, you will be a equity owner of the company (if they buy with stock) but even if they don't you might still be involved in running it or overishgt.
So Pro Forma, in that scenario, you want to control or help the development of apps, make money advertising off the apps and also direct that advertising and ultimately ecommerce towards shop.com. Wow, you've practically captured the whole value chain here.
So only if the apps help your cause and enable your mechanism would they be helped with advertising, which you pay... facebook, which you get back when you charge back advertisers for ads, and then the users for buying stuff off the site.
Its a great plan.
Post #17
1 reply
Lee replied to Kien's poston August 12, 2007 at 1:17am
Kien,
The only true definition for Valuation is what a willing buyer and seller ultimately agree to. All the other techniques are what analysts have made up to help them decide if the buyer and/or seller are acting rationally. The bottom line is that if the cash changes hands a true valuation has been achieved. This is why Warren Buffet talks about his partner Mr. Market who is sometimes irrationally optimistic or irrationally pessimistic about the value of their joint business. Given this situation, the rational person should buy when Mr. Market is too pessimistic and sell when Mr. Market is too optimistic.
The flaw in your reasoning about Facebook's valuation can be shown by looking at the recent example of Google whose market valuation today is $160 billion. Let's assume that this is $160 billion is a perfect picture of the NPV of their future cash flow which means that the super-rational Mr. Buffet is neither a buyer nor a seller of Google TODAY. However, if Mr. Buffet had a time machine and could go back five years ago to three years before Google went public and talk to the Larry and Sergei about buying a 10% stake in their venture, what would be a rational price for Mr. Buffer to pay for 10% of Google?
Remember, at that time Google had very little in the way of ad revenue and had an uncertain future WRT potential competitors, scalabiltiy, CPC patent lawsuit issues, privacy concerns, etc.? By your calculations, WRT comparables you would come up with some fairly small number like $100 million or at most $1 billion. However, the right answer, ignoring the cost of money, is clearly anything less than $16 billion (i.e., 10% of $160 billion). So, let's say Mr. Buffett decides to offer Larry and Sergei $10 billion for 10% of Google at that time, who is smarter the Larry and Sergei who sell to the apparently irrational Mr. Buffet or the Mr. Buffett who buys because he knows the future? Remember, in my time machine story, that the FUTURE MARKET VALUATION is GUARANTEED to be $16 billion.
The point of all this is to say that what we are really talking about is the likelihood of Facebook reaching 200 million users by the end of 2008. If you believe that this will happen and you believe that these users from high schools, colleges, workplaces, churches, charity groups, etc. will spend even 1/4 of the time that facebook's current users do in the walled garden of facebook, then I think you have to believe that monetization must follow. Even if facebook DOES NOTHING ELSE than add a web search function to their side bar, you would have to grant that they will eat into some major portion of Google's advertising business. In addition, facebook has opportunities to do much more in Person2Person commerce than either eBay or Craigslist have been able to do. In the area of B2C commerce, facebook also has a potentially huge role to play.
$2.5 billion in ad revenue just from keyword driven search seems like a walk in the park for facebook. Assuming all the other lines of revenue cover facebook's miniscule overhead, that is $2.5 billion in net income and a $100 billion value. If you read the rest of this post in detail, you'll see how I calculate the revenue potential of adding web search to facebook search results.
Thanks,
Lee
The only true definition for Valuation is what a willing buyer and seller ultimately agree to. All the other techniques are what analysts have made up to help them decide if the buyer and/or seller are acting rationally. The bottom line is that if the cash changes hands a true valuation has been achieved. This is why Warren Buffet talks about his partner Mr. Market who is sometimes irrationally optimistic or irrationally pessimistic about the value of their joint business. Given this situation, the rational person should buy when Mr. Market is too pessimistic and sell when Mr. Market is too optimistic.
The flaw in your reasoning about Facebook's valuation can be shown by looking at the recent example of Google whose market valuation today is $160 billion. Let's assume that this is $160 billion is a perfect picture of the NPV of their future cash flow which means that the super-rational Mr. Buffet is neither a buyer nor a seller of Google TODAY. However, if Mr. Buffet had a time machine and could go back five years ago to three years before Google went public and talk to the Larry and Sergei about buying a 10% stake in their venture, what would be a rational price for Mr. Buffer to pay for 10% of Google?
Remember, at that time Google had very little in the way of ad revenue and had an uncertain future WRT potential competitors, scalabiltiy, CPC patent lawsuit issues, privacy concerns, etc.? By your calculations, WRT comparables you would come up with some fairly small number like $100 million or at most $1 billion. However, the right answer, ignoring the cost of money, is clearly anything less than $16 billion (i.e., 10% of $160 billion). So, let's say Mr. Buffett decides to offer Larry and Sergei $10 billion for 10% of Google at that time, who is smarter the Larry and Sergei who sell to the apparently irrational Mr. Buffet or the Mr. Buffett who buys because he knows the future? Remember, in my time machine story, that the FUTURE MARKET VALUATION is GUARANTEED to be $16 billion.
The point of all this is to say that what we are really talking about is the likelihood of Facebook reaching 200 million users by the end of 2008. If you believe that this will happen and you believe that these users from high schools, colleges, workplaces, churches, charity groups, etc. will spend even 1/4 of the time that facebook's current users do in the walled garden of facebook, then I think you have to believe that monetization must follow. Even if facebook DOES NOTHING ELSE than add a web search function to their side bar, you would have to grant that they will eat into some major portion of Google's advertising business. In addition, facebook has opportunities to do much more in Person2Person commerce than either eBay or Craigslist have been able to do. In the area of B2C commerce, facebook also has a potentially huge role to play.
$2.5 billion in ad revenue just from keyword driven search seems like a walk in the park for facebook. Assuming all the other lines of revenue cover facebook's miniscule overhead, that is $2.5 billion in net income and a $100 billion value. If you read the rest of this post in detail, you'll see how I calculate the revenue potential of adding web search to facebook search results.
Thanks,
Lee
Post #18
Lee replied to Kien's poston August 12, 2007 at 1:29am
Kien,
You seem to believe that Altura Ventures has some plot for world domination. Let's focus on the facts:
1. We aren't asking developers to "show us their apps" we are simply offering them a guaranteed ad deal to allow them to make at least $1 per active user per year. We did this at a point in time, when folks were selling their apps like Favorite Peeps with 1.5 million users for only $60K and a job. By announcing to the developer community a long term strategy for winning (i.e., don't sell your app but rent your ad real estate instead), I believe we showed that we are not the predator in the system.
2. WRT facebook acquiring SHOP.COM and me becoming a shareholder, let me say, "From your lips to God's ears." I was founder and CEO of SHOP.COM and have investors from Bill Gates in 1997 to Amazon in 2001 to Oak Ventures in 2007 that all would like to see a return. I took these folks' money with the intent of doing everything I could to maximize the value of SHOP.COM. At this point in time, I see no other strategy that would build more value for SHOP.COM then to WEAVE ITSELF DEEPLY into the world's first Social Operating System. Done correctly, and I have confidence that the SHOP.COM engineers and Owen Van Atta, Facebook's VP of Operations who used to work at Amazon, will be able to do so, the integration of SHOP.COM's patented OneCart technology, 1200 merchants, 10 million products, 15% commission and killer brand name will yield HUGE VALUE for both Facebook and SHOP.COM.
3. WRT Altura Ventures wishing to monetize the coming FACEBOOK TIDAL WAVE, you've got that right. While we don't expect to capture the whole value chain, we are certainly placing bets to be a player. AND we are yelling at the tops of our lungs for others to join us. This seems like reasonable behavior in a free enterprise system and we are not ashamed of it.
I don't really know how to respond to your last sentence other than to say that I appreciate the compliment and if you're interested in investing in the Altura 1 fund, let me know. :)
Thanks,
Lee
You seem to believe that Altura Ventures has some plot for world domination. Let's focus on the facts:
1. We aren't asking developers to "show us their apps" we are simply offering them a guaranteed ad deal to allow them to make at least $1 per active user per year. We did this at a point in time, when folks were selling their apps like Favorite Peeps with 1.5 million users for only $60K and a job. By announcing to the developer community a long term strategy for winning (i.e., don't sell your app but rent your ad real estate instead), I believe we showed that we are not the predator in the system.
2. WRT facebook acquiring SHOP.COM and me becoming a shareholder, let me say, "From your lips to God's ears." I was founder and CEO of SHOP.COM and have investors from Bill Gates in 1997 to Amazon in 2001 to Oak Ventures in 2007 that all would like to see a return. I took these folks' money with the intent of doing everything I could to maximize the value of SHOP.COM. At this point in time, I see no other strategy that would build more value for SHOP.COM then to WEAVE ITSELF DEEPLY into the world's first Social Operating System. Done correctly, and I have confidence that the SHOP.COM engineers and Owen Van Atta, Facebook's VP of Operations who used to work at Amazon, will be able to do so, the integration of SHOP.COM's patented OneCart technology, 1200 merchants, 10 million products, 15% commission and killer brand name will yield HUGE VALUE for both Facebook and SHOP.COM.
3. WRT Altura Ventures wishing to monetize the coming FACEBOOK TIDAL WAVE, you've got that right. While we don't expect to capture the whole value chain, we are certainly placing bets to be a player. AND we are yelling at the tops of our lungs for others to join us. This seems like reasonable behavior in a free enterprise system and we are not ashamed of it.
I don't really know how to respond to your last sentence other than to say that I appreciate the compliment and if you're interested in investing in the Altura 1 fund, let me know. :)
Thanks,
Lee
Post #19
Kien replied to Lee's poston August 12, 2007 at 5:39am
Hey Lee
I wanna read all posts thoughtfully before replying but must make one thing clear, I'm not being personal with you or your venture. The sale of Top Friends for that amount only shows one thing - the inexperience and gullibility of the non-experienced with the professional. I am also curious, that I raise some views that aren't so "insightful" if someone spent some time to think about it, but... no one else has raised these issues...
I also wanted to present the argument so people understand that there's both sides to the coin. I had to do it in a more forceful or cheeky or animated manner so that its clear the post was not a self-introduction or re-affirmation of what you said.
I think it'll be an interesting challenge to "maturify" or professionalize some folks at an accelerated pace.
Look at the developer thread, one unknown guy posts "Official Facebook,...." and people are submitting their information already...
Ask when a developer comes to you, find out if he/she declined some offers before price was asked. Thats pure emotive reasoning, "I just don't like his profile, or his face" -- how can that drive this process?
ok later Lee, have a nice day.
Informed customers are always better :) Ignorant ones are dangerous
I wanna read all posts thoughtfully before replying but must make one thing clear, I'm not being personal with you or your venture. The sale of Top Friends for that amount only shows one thing - the inexperience and gullibility of the non-experienced with the professional. I am also curious, that I raise some views that aren't so "insightful" if someone spent some time to think about it, but... no one else has raised these issues...
I also wanted to present the argument so people understand that there's both sides to the coin. I had to do it in a more forceful or cheeky or animated manner so that its clear the post was not a self-introduction or re-affirmation of what you said.
I think it'll be an interesting challenge to "maturify" or professionalize some folks at an accelerated pace.
Look at the developer thread, one unknown guy posts "Official Facebook,...." and people are submitting their information already...
Ask when a developer comes to you, find out if he/she declined some offers before price was asked. Thats pure emotive reasoning, "I just don't like his profile, or his face" -- how can that drive this process?
ok later Lee, have a nice day.
Informed customers are always better :) Ignorant ones are dangerous
Post #20
1 reply
Kien replied to Lee's poston August 12, 2007 at 5:44am
also quickly noting,
Facebook making money from ads
Shop.com making money from sales or ads
Your venture making money from sales or ads
is not what I am saying is not ok.
I'm just noting you are covering a value chain. Some people probably didn't realize it.
Shop.com does indeed have a great proprietary approach... Its just a challenge, much like social network aggregators as well, people seem to want to keep things separate when you can do it all at one place...
Facebook making money from ads
Shop.com making money from sales or ads
Your venture making money from sales or ads
is not what I am saying is not ok.
I'm just noting you are covering a value chain. Some people probably didn't realize it.
Shop.com does indeed have a great proprietary approach... Its just a challenge, much like social network aggregators as well, people seem to want to keep things separate when you can do it all at one place...
Post #21
1 reply
Lee replied to Kien's poston August 12, 2007 at 11:05am
Kien,
I'm beginning to appreciate that you and I have at least a few goals in common:
1. Educate developers (some of whom may be first time entrepreneurs) that they should be wary when someone shows up with a checkbook (especially very early in a market like this) and wants to buy their whole company.
2. Evaluate business opportunities from multiple angles and don't accept any statement as fact until you've had time to hear both sides of an argument and ideally construct some kind of market test.
3. Enjoy the back-and-forth process of discussing various approaches to business and have fun getting the job done while at the same time managing the process with Humility, Integrity and Grace.
This fits in nicely with Altura Ventures' mission is to help entrepreneurs through the transitions that will turn their good ideas into great companies and thereby receive rewards beyond their expectations. This mission is supported by a vision that we call:
The Altura Way
1. To help our entrepreneurs transition their good ideas into great companies.
2. To amaze the world with the incredible value offered by the products and services of our entrepreneurs' companies.
3. To develop a team of employees that builds each other up, works hard in a family friendly environment and has fun getting the job done.
4. To achieve profits sufficient to reward our entrepreneurs, employees and shareholders beyond their expectations.
5. To manage the business with humility, integrity and grace.
You can read more about this at http://altura.com/employme
Thanks,
Lee
(c) 2007 Altura Ventures LLC.
I'm beginning to appreciate that you and I have at least a few goals in common:
1. Educate developers (some of whom may be first time entrepreneurs) that they should be wary when someone shows up with a checkbook (especially very early in a market like this) and wants to buy their whole company.
2. Evaluate business opportunities from multiple angles and don't accept any statement as fact until you've had time to hear both sides of an argument and ideally construct some kind of market test.
3. Enjoy the back-and-forth process of discussing various approaches to business and have fun getting the job done while at the same time managing the process with Humility, Integrity and Grace.
This fits in nicely with Altura Ventures' mission is to help entrepreneurs through the transitions that will turn their good ideas into great companies and thereby receive rewards beyond their expectations. This mission is supported by a vision that we call:
The Altura Way
1. To help our entrepreneurs transition their good ideas into great companies.
2. To amaze the world with the incredible value offered by the products and services of our entrepreneurs' companies.
3. To develop a team of employees that builds each other up, works hard in a family friendly environment and has fun getting the job done.
4. To achieve profits sufficient to reward our entrepreneurs, employees and shareholders beyond their expectations.
5. To manage the business with humility, integrity and grace.
You can read more about this at http://altura.com/employme
Thanks,
Lee
(c) 2007 Altura Ventures LLC.
Post #22
Kien replied to Lee's poston August 12, 2007 at 11:58am
Kudos to Lee
This kind of grace i don't think some folks will see even if they have gone thru the top business schools. I appreciate you realizing I wasn't being personal and that I'm very comfortable with the answers. I will say this is the clearest approach i have seen any big player have post -FB open API release.
Folks should note that a lesser person could have gone down the "so what have you done yourself" rant or sent a couple of midlevel execs incognito to engage in a finger pointing hellraising argument. That didnt happen and i'm happy to myself pass along the next opportunity i have to monetize something here.
Cheers and regards,
KML
This kind of grace i don't think some folks will see even if they have gone thru the top business schools. I appreciate you realizing I wasn't being personal and that I'm very comfortable with the answers. I will say this is the clearest approach i have seen any big player have post -FB open API release.
Folks should note that a lesser person could have gone down the "so what have you done yourself" rant or sent a couple of midlevel execs incognito to engage in a finger pointing hellraising argument. That didnt happen and i'm happy to myself pass along the next opportunity i have to monetize something here.
Cheers and regards,
KML
Post #23
Jonathan replied to Mark's poston September 22, 2007 at 12:39pm
So Mark, are you going to take Lee up on his bet?
Post #24
1 reply
Norbert replied to Lee's poston November 29, 2007 at 1:21am
haha -- this is one of the VERY FEW threads I had not followed on battellemedia.com ;D So I didn't see your comment there (I sometimes will look at the first several comments even if I find a topic not-very-interesting [since perhaps I might learn something I hadn't thought of before ;]).
But your comment was preceded by a plethora of other comments, and I guess I had lost interest in it (or perhaps I fell asleep on a beach or something like that ;)
At any rate, I find that your argument is quite reasonable -- and indeed, this has already been going on for several years already. Shopping.COM has been a community of VERY ENGAGED shoppers for many years. It was my prime example of one of the web's most valuable domains YEARS BEFORE eBay bought it (and THAT was indeed a bargain -- compared to such flops as [I'm PREDICTING here] YouTube.COM or Skype.COM ).
Brand names are ephemeral -- "natural language" search terms are NOT.
What is more, people USE natural language to communicate their IDEAS, INTERESTS, etc. This is, I believe, what you are getting at with your "I'm feeling lucky example": type in "news" >> get news; type in "downloads" >> get downloads.
So your argument is a STRONG argument -- for direct navigation (and I am quite sure that Google currently still makes a pretty penny in the business of placing more/less relevant ads at such "keyword" destinations).
However, as I have argued in "Wisdom of the Language" (see e.g. http://www.squidoo.com/fin
So although I see great value in the present Facebook community (largely based on demographics), I predict that it is VERY risky to bet the farm on a BRAND name (and perhaps Skype and/or YouTube will "prove" my point).
Nonetheless: I find your approach & analysis very interesting!
:) nmw
But your comment was preceded by a plethora of other comments, and I guess I had lost interest in it (or perhaps I fell asleep on a beach or something like that ;)
At any rate, I find that your argument is quite reasonable -- and indeed, this has already been going on for several years already. Shopping.COM has been a community of VERY ENGAGED shoppers for many years. It was my prime example of one of the web's most valuable domains YEARS BEFORE eBay bought it (and THAT was indeed a bargain -- compared to such flops as [I'm PREDICTING here] YouTube.COM or Skype.COM ).
Brand names are ephemeral -- "natural language" search terms are NOT.
What is more, people USE natural language to communicate their IDEAS, INTERESTS, etc. This is, I believe, what you are getting at with your "I'm feeling lucky example": type in "news" >> get news; type in "downloads" >> get downloads.
So your argument is a STRONG argument -- for direct navigation (and I am quite sure that Google currently still makes a pretty penny in the business of placing more/less relevant ads at such "keyword" destinations).
However, as I have argued in "Wisdom of the Language" (see e.g. http://www.squidoo.com/fin
So although I see great value in the present Facebook community (largely based on demographics), I predict that it is VERY risky to bet the farm on a BRAND name (and perhaps Skype and/or YouTube will "prove" my point).
Nonetheless: I find your approach & analysis very interesting!
:) nmw
Post #25
1 reply
Lee replied to Norbert's poston November 29, 2007 at 5:54am
Norbert,
I appreciate the comments. As founder and former CEO of SHOP.COM, I'm also encouraged by your belief in "generic" URLs.
Thanks,
Lee
I appreciate the comments. As founder and former CEO of SHOP.COM, I'm also encouraged by your belief in "generic" URLs.
Thanks,
Lee
Post #26
Norbert replied to Lee's poston November 29, 2007 at 12:11pm
OMG! *takes foot out of mouth* ;D
Yes, the future of http://generic.ws (and even moreso: sites with a http://generic.name -- such as [e.g.] http://pediatricians.md and/or http://bookstores.in/londo
Jeremiah Owyang (who I guess you're meeting up with next week?) today remarked "both jeep and apple have brand loyalists. Does one use social media differently than the other?" [ http://twitter.com/jowyang
This way of muddying the difference between IP and the lexicon is controversial -- at best. I feel such attempts to expand the brand (e.g. Deutsche Telekom's attempt to "take control" of the color magenta) are in BAD taste and may very well alienate those very people who are supposed to be ENGAGING ENTHUSIASTICALLY with the community platform.
I also feel that "Live" will leave many other sites in the dust -- much like Life Magazine was a quintessential hub in the print era.
Nonetheless: I am guessing we both more/less agree that facebook will be an intriguing minor league experiment. This experiment may very well become the PROTOTYPE for some VERY forward-thinking companies who are currently rolling out platform after platform of highly targeted, highly optimized, tailor made community networking sites focusing on very specific topical areas. What is amazing is that not even the top 10 keywords (whatever those might be ;) have full-fledged websites running on each TLD (how on earth can it be, for example, that books.net is virtually undeveloped?). Any company thinking of investing billions of dollars in 1 site should *seriously* consider investing a measly million dollars in each of a thousand keywords -- and thereby acquiring a "sticky affinity" that most marketers could hardly even DREAM of.
When Johannes Gutenberg invented movable type it was *also* possible to create innumerable different strings of letters -- but that didn't happen. We have a standardized lexicon: and the commercially significant vocabulary is indeed VERY LIMITED.
It seems to me that there are still some bargain virgin territories out there -- the main thing I DON'T understand is why so many people STILL don't "get it".
:) Norbert
Yes, the future of http://generic.ws (and even moreso: sites with a http://generic.name -- such as [e.g.] http://pediatricians.md and/or http://bookstores.in/londo
Jeremiah Owyang (who I guess you're meeting up with next week?) today remarked "both jeep and apple have brand loyalists. Does one use social media differently than the other?" [ http://twitter.com/jowyang
This way of muddying the difference between IP and the lexicon is controversial -- at best. I feel such attempts to expand the brand (e.g. Deutsche Telekom's attempt to "take control" of the color magenta) are in BAD taste and may very well alienate those very people who are supposed to be ENGAGING ENTHUSIASTICALLY with the community platform.
I also feel that "Live" will leave many other sites in the dust -- much like Life Magazine was a quintessential hub in the print era.
Nonetheless: I am guessing we both more/less agree that facebook will be an intriguing minor league experiment. This experiment may very well become the PROTOTYPE for some VERY forward-thinking companies who are currently rolling out platform after platform of highly targeted, highly optimized, tailor made community networking sites focusing on very specific topical areas. What is amazing is that not even the top 10 keywords (whatever those might be ;) have full-fledged websites running on each TLD (how on earth can it be, for example, that books.net is virtually undeveloped?). Any company thinking of investing billions of dollars in 1 site should *seriously* consider investing a measly million dollars in each of a thousand keywords -- and thereby acquiring a "sticky affinity" that most marketers could hardly even DREAM of.
When Johannes Gutenberg invented movable type it was *also* possible to create innumerable different strings of letters -- but that didn't happen. We have a standardized lexicon: and the commercially significant vocabulary is indeed VERY LIMITED.
It seems to me that there are still some bargain virgin territories out there -- the main thing I DON'T understand is why so many people STILL don't "get it".
:) Norbert