I debated on whether I was going to post on the Microsoft Facebook deal seeing how all the usual credibles had it covered such as Om,
Valleywag and VentureBeat. Even so, I couldn’t resist the juicy WSJ story and had to add my two cents. History tends to repeat itself and if over-valuation didn’t teach us anything in the Web 1.0 days, it will likely teach us this trip around if a social network such as Facebook sells for $15 billion (the speculated high of the valuation). It was not long ago (less than a year) various sources thought $2 billion was a little rich and now we’re between $10 to $15 billion?
Lets pop a sober pill for a second and look at the facts for rational sake.
Facebook is monetizing their traffic through advertisers and premium services like any other venture but it’s pretty hard to clear the break-even mark on $15 billion with adsense, ajax and advertisers.
Speaking of breakeven, let’s touch on that. If the influx of traffic and multi-million-user base actually paid the bills the Web 2.0 community would be a Utopia. Just imagine if 50% of the Facebook users paid $10 bucks a month and those same subscribers paid the monthly bill for 6 years…voila! Breakeven on $14.4 billion. Of course that is assuming Facebook is free of expenses over those 6 years and also assumes that 50% are subscribing (20% is probably more realistic with the rest advertising revenue). Facebook’s real revenue figures float around $150 million a year right now. No, I didn’t forget a zero.
Remember the $580 Million News Corp purchase? Facebook is clearly the better social network but Rupert Murdoch has a much better shot at profitability. Actually at these valuations News Corp could flip the social network and make a cool $10 billion.
Even “Mad Money” Jim Cramer stated Microsoft is a nice buy as a stock if they don’t do anything stupid like buy Facebook in a high froth web environment. At the end of the day I truly love Facebook and the creator’s success story. I think Mark Zuckerberg is the poster child for my Startup Addict motto “Dream Big, Be Great”…but even greatness has a price tag and $15 billion just ain’t it.