Valleywag is reporting that Facebook’s Mark Zuckerberg is holding 3 term sheets in his hands from Google, Microsoft and Yahoo!
Clearly whatever those term sheets agree to is going to be pretty outrageous, but online, data = money; that’s partially why Google the Data Miner is worth $200B in market cap. That’s also why so many are excited about Facebook, because as a leading social network, it’s full of data on its users. So is MySpace, technically.
But onto Facebook, the reason why even the craziest valuation in either one of those three term sheets will “only” propel onto Facebook a $15B valuation - 1/13th of Google’s market cap - however is not just Facebook’s smaller size but also its puny revenues: we’re talking $15B for Google vs. $150M for Facebook, or 1/100th.
Facebook is growing rapidly, for sure, that’s why with 1/100th of the revenue, it can command - gulp - 1/13th the market cap. But, the fact is, despite all of the bravado, it’s a valuation that remains but 1/13th.
How come? Clearly, it’s all about the lack of revenue growth.
Social Networking’s Billion Dollar Revenue Stream?
So, what could Facebook do to jumpstart revenues? Here’s a crazy idea:
Facebook should take a page from Google and extend it one step. Google’s brilliant move was to acquire Applied Semantics (for the tech) and Sprinks (for the network) and extend CPC-priced, text link ads from Google.com to other websites.
Today, many argue that “human beings will be the network of advertising”. That sounds creepy and odd, but depending on how it unfolds, it seems very probable.
So why not simply embrace the inevitable, turn Facebook into
a) a massive lead-generator and
b) share the proceeds - not with other sites - but with its users.
Facebook will eventually do a), who are we kidding? But by doing b), then it will avoid a flight of users onto other sites.
Here’s how it would work:
Say I have a profile and Facebook knows plenty about me, I should be able to:
a) opt in for the program (that is a must)
b) create a “threshold” of how much advertising I’m willing to take per period and set a price (or let Facebook create the market price).
I need to give this more thought, but basically there would be a relationship - up to diminishing points of return - between advertising I sit through and revenue I can share with Facebook.
It can’t be “positively correlated forever” because there will be abuse etc., but it can become an interesting ecosystem whereby assuming I opt-in to this, then Facebook will target me to its advertisers.
In fact, it also needs to be negatively correlated, too: if I am willing to see 100 advertisings, at some point, the additional message loses effectiveness…
The revenue would be small enough to avoid fraudulent activity, frankly, but for Facebook, it could be awfully similar to how “Google makes its billions pennies at a time”.
I really don’t spend much time on Facebook, but from my interactions with it, I can imagine a plethora of ways:
- Suppose I log in to Facebook and see an intermercial based on my interests etc. and get a cut off the revenue Facebook generates.
- Then once I am logged in, I check my inbox, which in addition to all of the nonsense invitations to apps and groups etc., I get X email adverts for a product or service that is related to one of my interests etc. Some would be CPM, CPC or CPA based… again, Facebook’s clearinghouse should be able to price things based on how much exposure I am willing to take.
- say one of my friends gets back from vacations and uploads pictures. I see off my feed that they’re back… if I had opted for it, then I would also get offers to book a trip to wherever they went, etc.
I know this all sounds creepy, but it would be the ultimate opt-in platform, and if I as a user get a cut, then I won’t really mind it. Sure, there is a potential for fraud and abuse, but that applies to all things when it comes to marketing.
But if Facebook has 40M unique users, it’s all about numbers. At 10% opt-in, or 4M, admittedly, it’s not huge numbers, but if Facebook hits 100M users and 25% opt-in, at 25M users, many of whom log in frequently etc., it starts to add up.
Would this work? Probably not, but running “little text ads next to search results” was crazy, too…
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WatchMojo NewsletterHSW is one of my favorite sites, I rarely check it now because I’m so busy with managing WatchMojo.com but it’s a fine example of skipping the UGC hype and sticking to creating high-quality content. By way of disclaimer, I should admit that in the past, I’ve worked with HSW in various capacities.
That being said, HSW is a classic textbook example of new media done right:
Founded by Marshall Brain early on, the company went through the dot com bubble and survived, eventually being acquired by WebMD’s founder Jeff Arnold’s investment arm: Convex Group. The company has raised $75M - separate from a $50M investment for its international joint venture, which today PaidContent mentioned was excluded from today’s grand slam sale to Discovery Networks for $250M - before its sale today.
$250M. Wow. Hats off to the entire HSW and Convex team.
A few thoughts:
“Synergy”
- Discovery has plenty of video in the offline world, but online, they’ve stalled, so by marrying their premium video to HSW’s online mojo, then 1+1 could in fact yield 3, if not more. Time will tell if this deal is as successful in practice as the theory suggests… I think once traditional media companies see just how much smaller the online video ad market is to the TV space ($750M vs. $75B), and they see the accelerated path of offline ad dollars to the Web, I really do wonder if they’ll stick to their guns and shrink their businesses in favor of online opportunities.
Buy, Don’t Build
- But, that being said, it does show that you need to acquire and not build if you want to be taken seriously: it would have taken HSW ages to build up a sizable video library… and conversely, it would have taken (and has taken) Discovery quite some time to ramp up online.
Think Big
From a management and growth perspective, here is the main thing all entrepreneurs need to realize.
When I worked at the midsized online publisher from 2000-2005, we were roughly the same size - of not larger - than HSW. Sure, they were far more informational (we were entertainment-oriented) but they decided to stick to their guns, raise $75M and go deep, way deep.
The main principals at my company did not have the stamina to bide their time, so they accepted a purchase offer in 2005 that increasingly looks cheap (this isn’t a hindsight is 20/20 kind of comment, even back then, we got one inquiry from a VC firm but the principals could not be bothered, they accepted the only offer they got).
Point is, Arnold to his credit has thought big over and over and over again. Even before WebMD, he turned a $25K investment into millions, then with WebMD he built the quintessential successful web 1.0 startup which now is a $3B market cap company… and by identifying properties like HSW for his Convex Group, he just proved that third time is indeed the charm.
The lesson for entrepreneurs is simple: once you start an enterprise, don’t become a low expectation you-know-what once you see the light at the end of the tunnel, as one successful entrepreneur (About.com’s Scott Kurnit) told me, don’t just aim for the fence, “knock the cover off the ball!
PLAY
