I’ve been watching the stories about the rumored acquisition of Facebook by Yahoo for $1 billion and finally feel compelled to comment on the rumors, something I usually don’t do. Here are a couple of the thoughts that I’ve shared with several clients and reporters over the past day:
- Facebook is worth a lot of money in the market. I’m no financial analyst so can’t really say what Facebook is worth, but here are some thoughts on how to value it. First, take a look at the recent IPO of Mixi, the leading Japanese social network. I wrote a post on it last week that looked at how to use it to value US-based social networks. Mixi’s IPO value was a little shy of $1 billion for its 5 million members. Using that as a base, Facebook’s 7.5 million members would be worth roughly $1.5 billion.
- Yahoo! needs a social network. The reason Yahoo! is so interested (and willing to pay top dollar) is that it’s core strategy is built around social media, with people and profiles at the center of the strategy and technology. One of the core components of a social strategy – and of social networks – are robust profiles (I wrote about this in a research piece waaay back in July 2004, “Profiles: The Real Value Of Social Networks”). On Yahoo!, there’s no strong, integrated use of profiles.
Here are two examples of my profile on Yahoo!. The first is the one associated with my Yahoo! ID – there’s not much there. The second is from my Yahoo! 360 ID, which has links to the reviews I’ve done across Yahoo!. Note that they are completely different and not really linked. Even more telling, at Yahoo!’s analyst day earlier this year, Yahoo! executives talked extensively about their social media strategy – and never mentioned Yahoo! 360 once. Yahoo! 360 is kaput, so they need to jumpstart their social networking initiatives – and an acquisition is the fastest way to do it to counter the growth of MySpace and YouTube.
And there’s also substantial affinity between Facebook users and Yahoo! According to Nielsen//NetRatings, 83% of Facebook users also visited Yahoo! at least once in August 2006. Also, Google has the same amount of overlap – 83% of Facebook users also used Google that month.
- The rumor effectively tests how Facebook members will react to an acquisition. After the news feed fiasco, Facebook can hardly be blamed for being cautious about moving quickly. This rumor effectively is a great test to see how its members will react – and if they will bolt to another service if an acquisition goes through. There is an official petition on Facebook called “Don’t Sell To Yahoo!” which 502 members have joined (as of this posting), which is nothing compared to the almost 700,000 members of the “Students Against Facebook News Feed” group. But give it some time – there is substantially less value if the Facebook membership objects strenuously to the idea of an acquisition by Yahoo! (or anyone for that matter).
So what’s really going on, especially with the antics described in the WSJ.com article? This is the classic case of a hot hot hot company sitting in a very nice spot with many options. Facebook (and its investors) will sit tight until the right offer comes along – or never and take their chances on the IPO market. In the end, I think being a part of larger entity would serve Facebook well, mainly because a social network needs context. And as Facebook opens up and grows beyond its core membership of college students, it will have to replace the context of the college campus with content and experiences that people share – something that Yahoo! has in spades.