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Why Facebook will be the next $100 Billion company. And how it gets there.

 People balked when Facebook turned down a $1 billion offer from Yahoo. They said the $15 billion valuation when Microsoft invested was insanity. And with Goldman Sachs’ recent investment at a valuation of a whopping $50 billion, the naysayers are crying foul once again. Well folks, mark my words: Facebook will be worth $100 billion in under 5 years, and I think it could be half that time. Here’s how I think it is going to happen.

Before I get to that however, let’s recap the naysayer’s argument. At a valuation of $50 billion, that is a whopping 25 times their estimated revenue of $2 billion last year. By comparison, stalwart Microsoft is valued at about 4x revenue, Apple about 5x revenue, and Google about 8x their revenue. So 25x is obscene. The other arguments that Facebook’s value is grossly inflated include:

  • They may have 650 million users globally but many are international and hard to monetize
  • They may deliver an enormous number of page views (about a quarter of all page views in the US belong to Facebook, which is an astonishing statistic) but they aren’t worth much to advertisers
  • They haven’t really figured out their revenue model yet
  • It’s just a big photo site and place to post worthless information; there’s no true utility
  • Social network users are not loyal; Facebook could become the next MySpace

All of those are completely valid arguments. What I think is being missed is a deeper understanding of what Facebook really is, and with that understanding we can finally get to where exactly I believe their tens of billions in future revenue will come from.

What Zuckerburg and Co. have built is not just a social network. What they have built is a social layer to the Internet. You see examples of this every day; over a million websites allow you to log in using your Facebook ID (interestingly, even the new MySpace does). And in what feels like overnight, the Facebook “Like” button has become ubiquitous on the web (yup, it’s right on the top of this blog post. Now go ‘Like’ it already before you continue reading!). And quietly, they have rolled out what they dubbed “Instant Personalization”, which actually customizes your experience on sites like Yelp, Rotten Tomatoes, Tripadvisor and Pandora to pull data about your you, your friends, and your interests, without you realizing what is happening. The privacy hounds will hate it, but users love it; when you add a social layer to your experience, it just plain gets better. Think about it: I certainly trust restaurant picks of my friends more than I do recommendations from the general population.

Okay, fine. People like Facebook, they like social, but where’s the damn revenue coming from? Simple: they are going to sell advertising. Sure, they already sell ads on Facebook itself to generate today’s revenue. I think that’s peanuts to what’s going to come next.

What I believe they are going to do — it’s certainly what I would do in their position — is roll out their version of Google’s Adsense program. This would allow websites across the Internet to place ads powered by Facebook on their sites, and like Google, Facebook then shares the revenue made from the advertisers with the website owner. Google generates around 40% of their $25 billion in revenue from this program, and I think that Facebook has the ability to monetize users better than Google.

Why? Because Facebook knows you better. Google shows you ads that contextually fit with the content on the page, and they do it well. If I am on a news site reading about the French presidential election, Google might show me ads about flights to Paris. But if Facebook were to serve this same ad, they could layer on what they know about me and my interests, serve up a far better ad; I was not planning a trip to Paris, but I am in the market for a new car and a recent Facebook status update told them so. A BMW ad might fit me a lot better. Better-targeted ads mean that advertisers will pay more for them, so websites will make more money having Facebook serve up the ads, and you can start seeing how the real dollars start pouring in to Facebook.

Hell, I don’t think Facebook will really even need to have ads on their site at all. Ultimately, they just need people updating their statuses and interests and adding their friends and networks. Or do they even need that? Simply the act of “Liking” things around the web is feeding them tremendous amounts of data that can be used to target ads. Remember how you just “Liked” this post? In my future, I could show ads for Wpromote to people that have “Liked” our blog entries.

So, there you have it: My theory on the future of Facebook, and why they will easily crack $100 billion of value by generating cold, hard cash. And a lot of it.

Is Facebook already secretly plugging away at this? Only they would know for sure, but their moves in the last year to incorporate aspects of Facebook across millions of sites would suggest to me that this is their plan.

On the off chance, I should add, that they have not thought of it and they steal my idea after reading this post, then I’m totally going to sue them and try to eventually play myself in The Social Network 2. Now that’s a plan.


7 thoughts on “Why Facebook will be the next $100 Billion company. And how it gets there.
  1. Bob says:

    “Google generates around 40% of their $25 billion in revenue from this program, and I think that Facebook has the ability to monetize users better than Facebook.”…Err, FB is good, but are they better than FB?

  2. Chad says:

    Imagine when they really start to leverage Facebook credits as an actual currency….just think of the “pennies” that add up on global exchange rates. Or the sifting of “transaction fees” as it becomes the new “mall”. 100 Billion seems doable.

  3. Rebecca says:

    Yep! It’s great to be Mark Zuckerburg and to be apart of the Facebook team. Why would they sell to Yahoo! for $1 Billion? They’re #1 and have an award winning film that’s still earning money — talk about ‘free’ publicity. Facebook is a ‘young’ company that will continue to grow for many years. Will The Social Network have a sequel? Stay tuned!

  4. If only Facebook went public… I still regret not literally buying in with Google when it IPO’d. Facebook is the next opportunity. There will still be plenty of naysayers but I think it’s pretty obvious that we’re headed towards a world governed by Google, Facebook and High Fructose Corn Syrup. Since I missed the window on Google and HFCS isn’t a company, I’d love to get in on the investing in FB before it’s too late!

  5. Pat says:

    When you think about it, “Like” is so easy, a quick way to relate to the world, leave your mark, and seemingly costs nothing. Anything that costs nothing to get, but has great monetary value, has to be the crop to cultivate!

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