Facebook – Is it worth it?
Jim Marshall wonders where Facebook sits in the 21st century media hierarchy and whether it is really worth $100 billion…
I’m ashamed to say I’ve never really been a fan of Facebook. For me it appears to be largely based around posting pictures of yourself online, which seems to me to be of rather limited appeal.
(In fairness most images of me are not particularly flattering – once, when I was having my picture taken, I said to the photographer: “I’m not very photogenic.” His response was: “No, you really look like that.” I’m sure true but a bit brutal, I thought at the time.)
OK, my discomfort with Facebook is purely a personal view and I can hardly deny that, in less than 10 years of existence, it has become a worldwide phenomena.
Its next stage of development is its planned IPO, which will take place in the spring. It is anticipated that it will be valued at a staggering $100 billion and will generate around $10 billion by making around 10% of the shareholding available to the public. This starts to break all sorts of records and dwarfs Google’s IPO in 2004, which valued the business at around $24 billion. (Incidentally I absolutely get Google and the power of search as the gateway to e-commerce which, in turn, has had a revolutionary impact on marketing and communications with consumers.)
But what of Facebook and where it sits in the 21st century media hierarchy… and is it really worth $100 billion, which some analysts are questioning currently?
There can be no doubt that Facebook is the number one medium in today’s ‘fashionability’ stakes – around 850 million members worldwide can’t be wrong (or quite as un-photogenic as me). Even if those figures don’t impress, Hollywood has endorsed it by making ‘The Social Network‘, so it must be OK.
If TV was the most influential medium of the 20th century, has Facebook achieved that status already in the 21st century? (Hold on, you might argue, isn’t the internet the medium you should be comparing with television? But, for me, the internet is just a bunch of connecting pipes and wires – a platform not a medium, which can carry TV along with radio, newspapers, magazines and of course Facebook.)
Actually it’s difficult to argue with Facebook’s credentials. Like TV, it entertains, informs and educates. And, again like TV, its scale and influence are having an ever increasing impact on society overall. However its current commercial credentials fall somewhat short of TV’s and indeed some of its internet compatriots.
So, its valuation is based on its potential rather than its current revenues and profit specifically, which last year was only $1billion (obviously I’m using the word ‘only’ rather euphemistically here!). But the point is that (normally) not even Ken Goodwin would value a business at 100 times profit, particularly if that translates into a valuation of many, many $billions… Actually, maybe Ken would have done, but that’s a different story…
Which brings me on to advertising revenues and Facebook’s potential. Clearly the view is that Facebook has only started to ‘scratch the surface’ in terms of advertising. Which is a fair point given that it is way behind both its offline and even on-line competitors (e.g. both TV and Google). But again this is where I start to struggle. Both TV and Google’s propositions are easy to understand but Facebook’s is more confused.
Even its own sales blurb appears contradictory: It states: “Connect with more than 800 million potential customers”, which is immediately followed by: “Select your audience by location, age and interests.” I can’t think it means target all 800 million plus users by location, age and interest because, by the time you complete the finished media plan, your client’s product will probably be obsolete (as will your career).
In fairness, Facebook is a medium which delivers one of the most powerful forms of communication – word of mouth. But we are all still learning how this can be most effectively achieved. Consequently, it is difficult for advertisers to predict an audience let alone a value to this and therefore an overall revenue potential to Facebook. However this has always been the case for new media channels – let’s be honest, no-one would have thought that commercial TV would prove to be the goldmine it has become when the first Gibbs SR commercial ran in 1955.
Additionally Facebook, or certainly Mr Zuckerberg, seems somewhat reticent about commercial success generally. He recently said: “We don’t build services to make money; we make money to build better services.” And, based on the Social Network film, he seems even more sniffy about advertising.
None of this detracts from Facebook’s achievements to date or its potential for the future. In fact this culture will have been a large reason for its growth and success. But I do feel that, in the irritatingly grown up world of public corporations, it might start feeling the heat if it doesn’t adopt a slightly more commercial approach, particularly if it is sitting on a $100 billion valuation.
I found the following story amusing, but only relevant to this piece in that it is (loosely) about growing up: A man knocks on a front door. The door is opened by a 15 year old boy who has a large glass of whisky in one hand, a Havana cigar in his mouth and a scantily clad blond on his other arm. Slightly bemused, the man asks: “Are your parents home?” The boy replies: “What do you f**king think?”