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September 22, 2006

Yahoo! And Facebook – a good potential match

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.

Yahoo_profile_2 Yahoo_profile_1Here 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.

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Comments

KE Liew

The most important question is, why Facebook? Why not other social networking websites? How about the upcoming ones where it should give Yahoo more flexibility?

We all know that social networking sites grow tremendously easy. So why take on an existing Facebook site when all it gives is more costs?

Maddy

Why should Yahoo buy Facebook when there are sites like College only Social Networking site like uspot.com

Refer to the article below.

Uspot - Excellent Facebook Alternative
September 12, 2006
Pete Cashmore


With the ongoing discontent at America’s most popular college networking site - first with the Facebook news feed feature and then with the revelation that the site will be opened to everybody, some users claim to be disenchanted. The obvious question is: will they defect to another site? Facebook probably consider themselves to be in a great position - there seems to be no direct competitor in the college market. However, an upstart called Uspot does offer a competitive product, available only to those with a .edu address (and, for a short while at least, those prepared to lie on the sign-up form).

Launched in February this year, the Utah-based site is a strong attempt that goes beyond Facebook’s functionality in some areas. It includes a fully-fledged video-sharing section ala YouTube, with the ability to find the top rated and most recent clips - you can also view channels and find media via tags. There’s photo hosting, too, but this is far more social than the offerings from Photobucket and ImageShack. In fact, it’s more like a mini version of Webshots, complete with rating, comments, albums, slideshows, tagging and a lot more. The music section is equally impressive, and includes playlists, a Flash player (similar to the MySpace Music player) and the ability to add tracks to your own profile. There’s a podcast directory, too - and while it’s not exactly comparable to Odeo, it does offer RSS, iTunes support, rankings and the ability to subscribe on the site itself. Other neat features: a rich text blogging tool than rivals Facebook Notes, a groups feature and events listings, complete with Google Maps integration.

Unlike Facebook, you can also customize your Uspot profile, changing the background, borders and fonts. Facebook users generally dislike the ugly, browser-breaking layouts on MySpace (see MySpace layouts), but Uspot strikes a nice balance between personalization and keeping the site usable for everyone. Personally, I’d like the ability to paste external codes like MySpace slideshows and music players, but it’s probably a wise decision not to permit these - they’re one of the reasons the Facebook crowd stay away from MySpace.

In fact, Uspot is a worthy competitor to Facebook apart from one thing: it hardly has any users. And since users are the lifeblood of social sites, the impressive feature set and design do nothing to fix the chicken-and-egg problem. Uspot would be wise to promote itself as the de-facto Facebook alternative, perhaps snagging a few of the Facebook dissenters along the way.

real estate

Social network should be good for Yahoo.

Scott Monty

You might want to check out the Marketing.fm post http://www.marketing.fm/2006/09/26/myspace-facebook-ivillage-compared/ that compares the traffic on MySpace, iVillage, and FaceBook.

Bottom line: based on purchase price (or proposed purchase price for FaceBook), the CPM for visitors is roughly $60 for FaceBook versus $6.49 for MySpace.

If Yahoo plunks down a billion dollars, they're overpaying - especially in context of their recent advertising revenue slump.

TK

I don't think Yahoo should buy Facebook.

First of all, what's so good about all this "Social Networking" websites? They waste our time.

At first, I updated my Facebook page like crazy with pictures and wrote messages for my friends. My friends did so too in the first couple of months of signing-up for the Facebook.

NOW? We are too busy with our lives. We don't update our Facebook pages. Sure, we may log-in once or twice per week, but we don't update anything. We realized that having a social networking website is such a waste of our valuable time.

Come on, already. You can update your blogs and let people subscribe to your RSS feeds, talk to people on Windows Live Messenger, and use email to keep in touch. Hello? And we have cell phones now. We can send videos and pictures to our friends instantaenously.

ALSO, no one is interested in your friends' lives THAT MUCH. No need to have a social networking website to keep in touch.

This social networking thing is a big "BUBBLE" in my opinion.

I'm so sick and tired of this!

social networking

I think this is since you wrote this article but google is now thinking about buying facebook for as much as 3 billion.
But i do think it would be a better fit for yahoo then google because the fact yahoo is more community based.

bissell proheat

thank you and Great post summing up a great event.

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