Thursday, May 28, 2009

Valuation of FaceBook

There is a lot of discussion about the valuation of social networking companies such as FaceBook and Twitter.

Sky Technologies, the Russian IT investment organization, just purchased almost two percent of FaceBook. This translates to a $10 billion valuation for FaceBook.

The preferred stock acquired by Sky Technologies confers special rights and so maybe $10 billion is an over-estimate. But various sources have speculated on the valuation and contrasted this most recent purchase to the earlier investment in FaceBook made by Microsoft.

It is important to recognize that the most valuable commodity on Earth is attention. So an alternative valuation approach might start with that foundational perspective.

Today Facebook reports that it has “over 200 million” active users on a world-wide basis. The Nielsen Online chart gives the latest on the size of the FaceBook audience within the United States.

In April, there were 53.8 million active FaceBook users in the United States. This amounts to 34.8 percent reach of active Internet users in the US and 17.5 reach of the total US population.

The United States audience for FaceBook averaged about 2 and a-half hours on the site in April. This amounts to about 5 minutes per day.

Coming back to attention as the most valuable of commodities, it is within this 5-minute average daily window that the valuation of the company must make sense.

And, looking at it a slightly different way, the $10 billion evaluation equates to $50 per each member of the currently active audience for FaceBook. So it is within those 200 million five-minute daily “attention structures” that the advertising model will have to pay out for FaceBook. It is an intriguing challenge for sure.

For more perspective on the Psychology of Advertising, please see Advertising and the Arc of History.

Copyright © 2009 by John Eighmey. All Rights Reserved.

No comments:

Post a Comment