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Let’s Play the Social Network Valuation Game!

Posted by Nick O'Neill on February 14th, 2008 3:06 PM

Following the rumors surrounding Fox’s attempt at merging their interactive division with Yahoo, bloggers have been postulating about what MySpace would be valued at. Fred Wilson suggests that Microsoft is going to have to now pay a premium for Yahoo! thanks to their ridiculous $15 billion valuation of Facebook. Today Henry Blodget posts about Microsoft potentially increasing their bid.

Regardless of the valuation that Yahoo! receives, social networks have become some of the largest entities on the web earning them outlandish valuations without even having an effective revenue model. All of this has happened in just a few years and brings back memories of the web portal days when everyone and their mother was working on creating a new web portal that would become the next Yahoo! Fortunately we are beyond those days but I’m still receiving inquiries from people that want their own social network.

So do you think the billion dollar valuations being thrown around are currently justifiable?

Posted in Social Networking
  

This entry was posted on Thursday, February 14th, 2008 at 3:06 pm and is filed under Social Networking. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

Viewing 3 Comments

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    P/E ratios of 100 are pretty hard to justify without seeing a nice plan to generate revenue. I assume one exists.
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    then again... when was the last time something that looked every bit like a fad got valuations of 100x their rev?
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    I think the financial picture doesn't take into account the strategic picture.

    What Ballmer and Murdoch and Zuckerberg are considering is that happy social network and web application users are basically locked in. API's mean that these users won't even get quite so bored over time because third party developers and content creators will continue to keep their platforms fresh. Finally, someday the "cost-per-click" business model innovation that saved Google will be echoed with social networks. Someone's going to figure out how to monetize these things. Souls locked into platforms - that is the strategic significance of social networking.

    It is also close to a zero-sum game - users probably have a certain number of web 2.0 type sites they'll bother to use frequently - and that's it. There may be some evolution or disruption of this order someday, but there is also a great likelihood that it'll be like TV before cable - there will be a Big Three, and then a few independent successes, and then the long tail. Who those Big Three will turn out to be is the subject of the MS bid for Yahoo - MS will not be locked out of that brandspace, and without Yahoo it does not look good for them.

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