Posted by Sucharita Mulpuru on February 6, 2012
I was called a Facebook hater last week. No ambiguity. "You're such a hater!" this woman, who happened to be a social media marketer at a large retailer, told me. I will admit, I have reservations about Facebook’s role in commerce which has no doubt made her job more difficult, but I must defend myself. I’m not a hater. In fact, contrary to all the tweets and blogs questioning Facebook’s purported $100B valuation, I actually think the company is worth all of it and probably more. (To those same critics, if Facebook with $1B in profits is overvalued, what does that say about Groupon with about as much in losses? But that’s a discussion for another day.) Here are some considerations:
- 44% of the world’s internet traffic visits Facebook daily. As the CEO of an internet company months ago hypothetically and brilliantly asked me in response to the question of Facebook’s valuation, “What’s half the internet worth?” Whatever the right number is, it’s a lot and when framed like that, it makes $100B seem very reasonable.
- They’ve haven’t even optimized the display ad space. Now retailers spend very little on display ads online because the ROI is abominable, but that hasn’t stopped brand advertisers. In fact, about $8B was spent on display ads and banners in 2011 in the US alone and that number is growing more than 30% annually according to the IAB. And what Facebook does doesn’t even fully exploit that opportunity. My colleague Nate Elliott suggests in a great post about the opportunity for Facebook that they should buy a demand-side platform and get out of the small potatoes business of the “little advertising badges” in the right rail of Facebook.com. The real opportunity Nate suggests is getting a cut out of all the other advertising everywhere else on the web.
- Finally, the brilliance of Facebook’s opportunity lies in its network effect. Unlike other companies that struggle to reactivate lapsed customers, spending lots to find the latest mailing or email address, Facebook has a marketer's dream with its authentic, portable identities. And even when a person “churns out” of Facebook, it’s often for not very long. Because all it takes is one person in someone’s network posting something of interest somewhere to the lapsed person that creates a cycle of engagement. And the open graph seamlessly allows that information to even be communicated off Facebook. Which explains why half of web shoppers that we surveyed in conjunction with Bizrate Insights a few months ago said they spend more time on social networks then a year ago.
Eighth down on their list of Facebook’s own risk factors is probably one of the biggest: the potential for government regulation of personal data (ie Facebook’s data). But that’s a long leap because the very nature of a “like” (or any other derivative function) is that it is inherently an opt-in broadcast of one’s preferences. Is Facebook worth half of Google (Google's valuation is now about $200B)? Well, when Google went public in 2004, it had less revenue and was less profitable. Google has since increased its revenues more than tenfold since then. What we do know is that Facebook is an incredibly lean organization that makes more than $1MM per employee, is very profitable, has been very scaleable, and has a long, long way to go before it hits a wall generating revenue or profit.
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