Thursday, October 25, 2007

Facebook and the value of blocking Google

In his post, "The $15 billion nonsense", Nick Carr nails it:
Extrapolating Facebook's true worth from Microsoft's investment is a ridiculous exercise ... The investment ... was a price Microsoft had to pay to nail down the partnership.

Partnering ... is far more about gaining future strategic options and blocking the advance of ... Google ... than about making a financial gain.
This was $240M to gain share for Microsoft's advertising platform at the expense of Google and Yahoo. It says nothing about the market value of Facebook.

Update: Mike Masnick reports on rumors that some crazy hedge funds might have gone in at the same $15B valuation for Facebook. As Mike says, "Those hedge funds don't get any of those additional benefits that Microsoft gets." If true, this news would support a $15B valuation for Facebook, at least if you believe those hedge funds are responsible stewards of their investors' money.

Update: John Battelle says, "I think no one ... has truly grokked what Facebook has a shot at doing - Adsense driven not by search queries, but by personal profile." Call me a skeptic on this one. I think personalized advertising will produce much higher returns by reaching back to the last action with purchase intent than by targeting a coarse personal profile.


Anonymous said...

reaching back to the last action with purchase intent is ok, but facebook will be able to remind me of my girlfriends birthday, recommend a suitable restaurant and suggest a present.

Greg Linden said...

Hi, Anonymous. It is a good point that there may be some specific events that have strong purchase intent, such as birthdays, that Facebook can target. However, I am not sure that is a frequent enough advertising opportunity to make the kind of revenues implied in a $15B valuation.

Moreover, I cannot see how the targeting will be specific enough that it will be useful to users and lucrative for Facebook. Taking your birthday example, how will Facebook know enough about the girlfriend to provide anything other than a generic recommendation for a restaurant and present?

Anonymous said...

"how will Facebook know enough about the girlfriend to provide anything other than a generic recommendation for a restaurant and present?"

First of all - if Facebook can prevent the ill fate of once again forgetting the birthday of my girlfriend it is all the argument I need to stay as a loyal user... :-)

However, to the point of Anonymous, if the girlfriend is on Facebook too + the relationship/connection between the two persons is in the system + she has her profile data filled out it should not be too hard to find:
a) suggestions for a suitable present in line with her preferences
b) suggestions for a nice restaurant in the neighbourhood
c) a nice offer to deliver some fancy roses to her through a local florist.

Anonymous said...

Hi Greg,

instead of closing down Findory why dont you convert it to a personalized ad network. I think you'd make a ton of money.

Greg Linden said...

Thanks, Murray. I have thought about going after personalized advertising.

The problem is that success of that business probably depends on building up high quality ad inventory, which likely requires a substantial advertising sales staff, considerable funding to build that team, and deep connections into the industry.

Findory did make an attempt to build personalized advertising without building up its own ad inventory -- first layering on top of Google AdSense, then trying layering on top of Amazon Associates -- but neither of those attempts were successful.

That is not to say that some other effort would not be, but I suspect that layering on top of another's ad inventory does not give the level of access and control necessary to make the targeting as effective as it would need to be.

If you agree that the advertising team is critical, then I think you have to ask which is more important to succeed, the strength of the advertising and sales team or the strength of the targeting technology. I suspect that, in this extremely crowded space, getting the deals done is critical, putting technology-heavy startups like Findory at a disadvantage to the larger players already swarming over the market.