I highly doubt anyone at MSFT is grilling Mark Zuckerberg over what he’d do with the rumored $300-500M he might be raising, but let’s consider some of the options:
#1- Working Capital:
Facebook’s got 300 employees, expect them to add to headcount, labor always eats up a large chunk of total expenses, especially in SF. If the company doled out options more generously, maybe the salaries would be lower, but in today’s climate, don’t count on it. In fact, Google really benefited from the dot com crash to hire engineers for cheap, Facebook? Not so lucky.
#2- IT infrastructure:
We consistently hear that Facebook was built on a more robust platform to scale than MySpace was, really? Good for them. Translation, their massive growth costs a lot of money, servers, and all of those series of tubes. Expect a good chunk to go to infrastructure.
#3- Acquisitions:
a) Search
I could see Facebook buying a search company or two. Let’s face it, your future as a social network is pretty limited if the only society you are in contact with is Facebook’s, and not the world wide web. Everytime someone is on Facebook and they want actual news or information, they leave Facebook, and that means, they have a 65% chance of heading over to Google, who commands just that market share in search. And, as I wrote this weekend, Google is Facebook’s biggest competitor, not Myspace. For more on that, click here.
b) Facebook Apps
Right now, people are free to develop Facebook Apps so long as they adhere to the Rules of Engagement. This means that unpaid teams can take risks, and Facebook can shut them out, duplicate their innovation etc., Probably, it won’t be that evil, it will simply acquire these teams, especially since fbFund was launched to “excubate” such ventures.
c) Ad Networks
It sound far fetched, but AOL’s best deal was in buying Advertising.com for $430M in 2004. By doing so, the previously closed AOL.com now had a foothold online, generating money outside of AOL.com’s walled garden. To this day, Advertising.com accounts for the bulk of AOL.com’s revenue. I suppose Facebook could aggregate all of tha user data and create a pretty powerful behavioral ad network and make quite a bit of money.
I don’t think, with all due respect to Facebook, that they are as strong in business planning as they are in technology. I don’t, in other words, think that they know what to do with the money. But this last idea, far-fetched as it might be, will prove a lucrative one that could create some really interesting revenue streams.
Of course, it will boil down to execution. I’d list the Top 5 Ad Networks they should buy… but that would be helping them out too much.
d) Virtual Worlds
I hate to say this, but this is a sort of natural extension of something they could add… they should technically build this themselves, but don’t kid yourself, their hands are tied as it is just trying to keep the darn thing from falling apart.
What else could they buy?
e) Data Centers
MSFT, Google et al. are all investing in data centers, Facebook will too, and a good chunk of the $300-500M will be just for that.
Of course, you must be thinking, why not sell or IPO? Well, the number of companies that could afford to buy Facebook are limited, and an IPO would currently flop, as their revenues are just not there.
Tags: Facebook.com, Financing|
Posted By: Ashkan Karbasfrooshan | Sep 25th
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September 25th, 2007 at 7:28 pm
I’ve thought for a while that the #1 best thing Yahoo! could do to get their stock up is do what Disney had to do back in the 90s. Disney needed to buy Cap Cities to stay in the content game. That deal cost Disney 19 billion. Disney was worth about 20 billion at the time. Yahoo! should do the same. Take the gamble and fork over the 10 billion for facebook now before it’s a 200 billion dollar company.