Thursday, February 12, 2009

Facebook: Putting a value on the daze of our lives?

As an indirect consequence of the AP's investigation of a lawsuit, we discover that Facebook values itself (as of last summer) at $3.7B. (see here for a more detailed rundown of the circumstances and implications of this valuation including a special note on how NOT to use computers to redact information in a document).

So what?
Aside from the obvious question: "What happened to the $15Billion valuation frequently referenced just last year?" there is an interesting advertising message in the math. 

A little simplistic math looks like this:

$3.7Billion dollars / 30 million unique visitors per month (the active users) = $123 per user.

So the market value of the enterprise, assuming it's ALL in the user base, is based on a user value of $123.00 each.

If an impression online costs somewhere south of  one-half a cent (using $5 CPM as a basis), that means you would need to serve each Facebook user 24,600 impressions to justify the market value...if advertising is the revenue model. 

Assuming a generous 2 seconds of attention for each and every impression, that amounts to requiring each user to have 13.66 hours of their lives monetized by impression-based advertising on Facebook.

You can substitute 'virtual drinks' or 'hugs' or whatever you want to substitute for the impressions, but Facebook still has to find a way for it to total $123 per user over whatever the revenue horizon is. 

Of course this is oversimplified math to make an oversimplified point: Social Networks are not about marketing. 

In a deflationary environment (here for prior post), imbalances in the value we assign to things are corrected. Some things, like cars, houses and material goods will be valued less in monetary terms. Other things, like time spent with friends and family, might be valued more than they have non monetary ways (see here for this and other marketing themes for 2009).

Expecting the monetary value of time spent with advertising to increase in such an environment seems an unlikely path to marketing success...especially as the word 'social' regresses to its meaning.

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