A few years ago, I joined a search engine called Mamma.com. This was before Google was omnipresent and monetizing every click you and I generated. At the same time, another company in my neck of the woods, called Zero Knowledge, raised something like $90M in VC. ZK’s mission was simple: to make users anonymous as they surfed the Web. The software made surfing the web slow and tedious, and then 9/11 killed the privilege of surfing anonymously on many sites. I’m pretty sure ZK went on to have a successful story as it repositioned itself… but:
More importantly, the mere premise that users valued privacy and anonymity was blown to smithereens as we left morsels of our information across a myriad of websites around the Web.
GOOGLE: THE DATABASE OF INTENTIONS
That, in a nutshell, explains why Google is worth $200B because they own a lot of data on you, me and the intentions that connect us in between. John Battelle referred to Google as the Database of Intentions in his book The Search. Did Google become a $200B machine because it owned all that data or did it become a $200B machine because it was the top dog in search, which is the closest thing to commercial intent? That’s a question that we might need to ask ourselves more frequently.
FACEBOOK: THE DATABASE OF CONNECTIONS
Then, along came Facebook, whom we dub the Database of Connections. Facebook recently decided to justify its paper $15B valuation by launching SocialAds, which freaked a lot of privacy watchdogs by pushing the privacy envelope even further than Google dared trample on.
WHAT IS MORE VALUABLE: ANONYMOUS INTENT OR RECOGNIZED CONNECTIONS?
Naturally, as data equals money and ownership thereof equals value, Google and Facebook are one-upping one another in the data mining conquest.
If the Industrial Age created corporate behemoths out of GM and GE, then the Information Age will surely give us Google and Facebook.
EARNING IT THE HARD WAY
While Google “earned” all of the data it has mined over the years reluctantly (we never really thought that Google would be tracking all of those clicks, did we?), newer breeds of services - namely the social networks - were in fact overtly allowed to collect such data.
MySpace, Facebook et al. all collect a helluva lot of data that we give them. There’s a nuance there people. I’m not accusing Google of anything, after all, they made their search engine available to all for free, did not barrage us with ads, and ultimately created an ecosystem around freeware so more power to them.
FEAR VS. GREED
But their massive success in turn encouraged investors to back firms like Facebook that play by decidedly new rules of engagement. I’m not sure if Facebook will ever make that $15B valuation seem reasonable - as Google did with the $85/share IPO price - but ultimately, I’m still not convinced that data automatically equals value.
For example, Google’s data could drive purchases, Facebook sure does have a lot of data, but their management’s inexperience made them fumble the SocialAds launch (I doubt, for example, if Google ever threw a launch party for Ad Words or Ad Sense, but I digress).
SOCIAL NETWORKS: A HOUSE BUILT ON SAND?
Similarly, I doubt many of the social networks around these days are really worth their weight in gold?
MySpace raised eyebrows when it sold for $580M, then it tripled in size and became the largest site by pageviews. The conclusion (and right one at that) was that the $580M price tag was a steal. But it was a steal because YouTube subsequently sold for $1.65B and Facebook has now grown to fetch a $15B paper value. Is Facebook really worth $15B? Probably not… that implies 100x revenues… but clearly, revenues are moot, I get that.
But MySpace and all of Fox Interactive Media won’t reach $1B by 2008 in revenue… so what could MySpace really be worth? Who knows.
VALUATION: TWO SIDES OF A COIN?
As you go through the numbers, you then start to realize that Facebook isn’t really worth $15B, but rather, MSFT was willing to pay $240M and Facebook’s investors were willing to sell 1.6% of the company for that amount, which is the same thing in one way but not the same thing at all.
WHAT IS DATA REALLY WORTH WHEN THEY’RE SO MUCH OF IT?
Clearly, data is worth something, the question is, what is it really worth? My grandmother passed away this year, today I decided to create a family tree. I recalled Geni.com offered users the ability to create a family tree for free. Should be noted, the company initially raised $1.5M on a $8.5M pre-money for a post-money value of $10M, then later on raised a whopping $10M on a $90M pre-money for a post-money $100M. The investors in the second round for 10%, yikes!
Anyway, the point is: if indeed MySpace, YouTube and Facebook are worth what they are, then sure, Geni is worth $100M. But unless Facebook (the only company of the three that has not exited) can command revenues in 1, 3, 5 years that match Google’s revenues over time, then Facebook’s valuation will come down to earth, as will Geni.com’s.
I’d argue that all social networks are at risk because it is pretty easy for Facebook, for example, to add a Family Tree application which over night would make Geni.com vulnerable, but I digress. More importantly, in that case, I’d argue that one’s existing social network which consists of friends, colleagues and family is worth more than a family tree, but we’re going on a tangent.
REAL VALUE LIES IN SCARCITY
The point I am making is this: Google is eons more valuable than Facebook for the simple reason that the data they collect is pulled out from users anonymously and independently of whether or not we want to give them said data, whereas social networks such as MySpace, Facebook, Geni et al. get more or less accurate data that is widely available on numerous sites and not really hard to get.
GET WHAT YOU BARGAIN FOR
For that reason, I’d argue that the privacy watchdogs need to take a chill pill when it comes to social networks: if we - the users - give up such data voluntarily then the companies should not be blamed to leverage it for profit. Admittedly, changing the terms of use after you provide them the data is not ethical or right… but this is business. Sure, the Web has long felt like a Grateful Dead concert - and that ain’t a bad thing - but as companies fetch $100M valuations, lest $15B valuations - naturally the flip side is that they push the envelope and trample on user’s rights.
The key is prevention: if you are not happy with what a company might one day with your data, then I got a piece of advice for you: don’t volunteer the data in the first place.
TANGIBLE ASSETS
As a commenter below comments: “There are considerable amounts of our data already in corporate databases and yet the technology to exploit that information is not yet fully employed.”
Indeed. And not only is our data already on corporate databases, but these corporations exchange / sell it between one another freely.
Ultimately, if the information is widely available and available to all, then it’s like a common denominator that gets eliminated out of the values of these social networks, and suddenly, the emperor has no clothes.
Building your company on UGC or data is rather foolish, but in the euphoria of Web 2.0 we sometimes forget that.
PLAY
