From the Valley

Why Zuckerberg and Facebook want $2 Billion Dollars and Why Some Believe They Deserve It

By ValleyFaces.com ⋅ April 6, 2007 ⋅  Email this post ⋅  Print this post ⋅ Post a comment

In July of 2005, when News Corporation acquired MySpace and its parent company Intermix media for an astounding $580 million dollars, many heads from Wallstreet to Silicon Valley turned towards MySpace’s rival social networking site Facebook in eager anticipation of its next move. Many speculated that Facebook would follow suit in a similar sale to a larger media network in a looming deal. Rumors soon began to circulate that Facebook’s founder Mark Zuckerberg was unwilling to negotiate any price below $2 billion dollars, and business analysts and techies alike began to scoff at such a notion. Surely, they thought, “if the much larger MySpace network sold for $580 million, which even then was thought to be a remarkable price, Facebook could not be worth nearly that much.” Others began to wonder if such a high offer was merely a marketing ploy by Zuckerberg and his associates.

However, the short period since News Corp’s acquisition of MySpace has not only proven the critics had underestimated the value of Facebook, but perhaps even that Zuckerberg had undervalued the potential of his own company. The retrospective view of the News Corp deal seems to be at a consensus as perhaps the net bargain of recent years. This past year, New Corp has been the dominant media conglomerate who’s shares have outperformed those of its major competitors including, Walt Disney, Viacom, CBS, and Time Warner – much in thanks to MySpace; while each of its competitors shares have either remained unchanged or are down for the year, shares of News Corp are up 10% for the year. But Facebook can do even better.

Although MySpace commands a much larger audience, I still believe Facebook has more value for 5 Reasons:

1. Facebook was built on personnel integrity. This is the single most significant factor behind the success of Facebook. That is, your friends on on Facebook, are your friends in the real world as well. Users are able to find old friends by searching real names, whereas most people on MySpace go by aliases. (This also brings up a subsidiary issue in that although MySpace may have more users, some of those users make up several aliases, artificially inflating the number of MySpace users.) But more importantly, this underlying aspect encourages commitment from its users. Because Facebook keeps you connected with your real friends, leaving the network is almost equivalent to abandoning your friends, whereas, I can imagine MySpace users leaving their online aliases as they mature.

2. Facebook values privacy. This is important for two reasons. First, Facebook users know their audience and are therefore more comfortable with publishing genuine information about themselves. Secondly, and perhaps most importantly, it minimizes the potential for users to become victims to online predators, as has been the case for some MySpace users.

3. Facebook has better site layout. Not only does Facebook have a clean, slick layout, but it is also devoid of the excessive and often offensive barrages of advertisements that engulf MySpace. As a result, Facebook users are able to easily navigate through its pages and focus on what matters the most – their network of friends.

4. The few ads that Facebook does allow, provides more value to both its advertisers and the users. Because Facebook is based on real people and real college networks, advertisers have a targeted demographic based on class, age, education, geography, and income that they can reach easily. And because the advertisers can reach the right audience, the users get advertisements that are actually relevant and desired, such as notification of on campus events, job opportunities, social club meetings, and parties. In contrast, MySpace users are often bombarded with advertisements to generic dating sites and mass marketing promotions.

5. Facebook is ever-evolving. Facebook continues to put additional features based on user recommendations and feedback that have taken the site beyond the status of merely a social networking site. There are those features that provide utility, such as Facebook Mobile, as well as ones that make the site more enjoyable, such as photosharing. Facebook has now become the number one photosharing site on the web with its users uploading more photos than Flikr and many other sites that are based exclusively on photosharing. More recently, Facebook has added media sharing feature that has proven that Facebook is up to date with the technological trends of time. And of course, there’s the unique NewsFeed feature, which was initially met with much criticism, but has eventually become a staple of its users daily lives.

As the internet moves out of Web 2.0, I suspect people will begin to abandon their online aliases, and many social networking sites will become the artifacts of a bygone era. As its users mature and grow out of the pop phase of internet activity, only those networking sites that are built on substance and are willing to keep up with the ever-evolving standards technological innovations will stand the test of time. It is this exact combination that Facebook, more than any other social networking site, has displayed thus far, hence making Facebook worthy of a serious investment by a company seeking to create a dominant online prescence with lasting potential.

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