Why Facebook Is Worth Over $10 Billion

Yahoo! have been in talks with Facebook for over a year now and apparently recently got shy at Facebook’s $1 billion asking price but as I will explain here Yahoo! have missed out on an absolute bargain.

Facebook have 18 million users, plenty. However MySpace has 100 million + and sold for a mere $580 million to News Corp’s in 2005. YouTube sold to Google for a reported $1.65 billion in 2006 but it serves over 100 million video’s a day and has over 25 million visitors a month. So what makes Facebook so valuable? It gets relatively huge traffic levels but not on par with YouTube or MySpace. Despite now being available to anyone it began life as an exclusive network for students (you needed an educational email to register) and this is still its primary user group.

So where’s the money?

Currently Facebook displays conventional banner advertising on users’ homepages and selected pages through the site. Adverts are unobtrusive and random in so much as they’re not targeted at any particular user- they’re just served to the entire site on a random basis. Facebook are doing ok out of this arrangement on the basis of the number of page impressions they receive, although in reality they’re keeping advertising at a minimum in order to build up the value of the site for its eventual sale which will almost certainly happen in 2007/8. Smart guys!

The power of information

Register with Facebook and quickly you can find yourself giving away huge volumes of valuable personal information. Think about it… Facebook know your name, they know how old you are (actually your D.O.B which is infinitely more valuable as I’ll go on to explain), they know if you’re male or female, they know your hometown, your postcode if you choose to give it away (although I doubt many users choose this), they know if you’re single, in a relationship (and who with), married, divorced etc, they know your sexual orientation. Ok so you can answer all these questions as honestly, dishonestly or vaguely as you like but from what I’ve seen people happily give accurate information about themselves as it’s their friends and potential friends who are going to see it- and no one else right?

But what else do Facebook know? Well they know where you went to school, where you work, more sinisterly your religious and political views. From this we can start to build up a pretty valuable market profile. As I’m telling Facebook I may as well tell you I’m Male, 22 (born in August), Straight, in a relationship, conservative, atheist from Brighton, England. Went to school at Blatchington Mill Secondary, college at a place called BHASVIC, University at Bournemouth. From this information we can draw further assumptions- I live in Brighton and based on the location of my schools catchment area we could pretty accurately map places in Brighton I know about, visit, and live in (think Google maps API). I’m a straight; conservative from a reasonably wealthy area in full time employment therefore I’m probably white, middle class with a decent disposable income.

So what else? Facebook know what you look like, they probably know what you used to look like a few years ago as well. Probably most significantly they know who your friends are, they know how you know them, they know when you talk to them, what they look like and ultimately they know exactly the same information about them as they know about you- you’re interests, likes and dislikes and your friends tastes as well.

They know your email address, so they know if you use Hotmail, Yahoo! Mail etc. They know your phone number so they could pretty easily work out your phone provider. They have your IP address so they could work out your ISP. They know where you’ve arrived at the site from so they know what search engine you use (enter Yahoo! And Google to the bidding war), what browser you’re on, they know if you’re visually impaired or have learning disabilities from the settings on your browser.

Facebook know when I’m logging in and from where so they know the hours I work, if I’m using the internet at work, the pages I leave Facebook to go to or the pages I come from so they know what other sites I look at. I can set my current status and tell Facebook exactly what I’m doing or feeling right this second.

Ok so you get the picture by now, one last thing though, is your Facebook password the same as your email account password, your internet and telephone banking password, every other password you use in your daily life (because until I wrote this post mine was!) how much more information do you want to give away?

What’s the risk here?

Realistically it’s pretty slim. Facebook are a nice bunch of guys and a great site, I love using it and despite knowing what I know about information security and the like I choose to give away a big chunk of the information I’ve talked about here.

Yahoo! And Facebook

So if Yahoo!, Google or god forbid Microsoft successfully purchase Facebook (as I say I’m reasonably confident this will happen this year) the Orwellian lucid dream proposed by this post becomes a perpetual nightmare. Imagine a company who have made billions and dominated the fastest growing market in the world by developing algorithms which crawl hundreds of millions of pages of random information (the internet) and categorize that information with the ultimate goal of matching it to businesses and selling advertising.

The search algorithm let loose on Facebook

Imagine the search engines let loose on Facebook. An algorithm tuned to pick out profile information (John, born 13.08.84). Map it to keywords in personal interests i.e. football, Manchester United. Plot your location on a map i.e. Brighton, England. Follow links to your closest friends with similar interests i.e. Bob and Dave who live round the corner and serve me an advert something like:

Happy birthday for next week John.

Did you know its Dave’s birthday the week after?

Why not book tickets for Brighton and Hove Albion vs. Manchester united on 12.08.07

Click here to book now and get 3 tickets for the price of 2 (why not ask bob to come along- he supports Brighton and you haven’t spoken in a while).

Book today and we’ll give you a half price limo from your house to the game with trashy-limo’s.com.

Now that’s powerful advertising and it’s just around the corner. If Facebook has 25 million registered users by the time it’s sold, half of whom visit every day that’s a minimum 12.5 million page impressions a day. Serve the advert above at $1 a click (which is far less than its worth based on the current AdWords CPC model) expect a click through rate of up to 10% based on the precise nature of the advertising and that’s $1.2 million minimum a day!

Posted under Facebook

Published on 09/12/2009

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