Facebook for $6 Billion? Wrong Question

Posted by: Rob Hof on July 12, 2007

Amid a rumor that Facebook is now worth $6 billion to somebody like Microsoft, I think John Battelle gets it right: Mark Zuckerberg doesn’t need anybody now. Through savvy moves like the recent opening up of its service to outside Web developers, it’s seeing a surge of interest from users. Of course, Battelle raises the right question, which is what will Facebook’s business model be? Apparently not traditional online ads, if this report is indicative (and it’s probably not, so early in the game). Dave McClure has some interesting insights, basically that once you divine people’s intent through their Facebook applications, you can provide them… well, he calls it content, but the more cynical among us still call it advertising. But advertising you might actually be interested in. I also like Scott Karp’s idea:

What if there were a way for companies to identify which Facebook users were actually using their products, and then create a mechanism for the users to highlight their use of the product to their friends — and then put those users into the economic value chain.

I’m just making this up — but it’s clear that Facebook and other social networks are in need of the aha moment that happened at Google when someone realized — hey, if we rank the ads based on RELEVANCE as well as price bid, then people would be more likely to actually CLICK on the ad, and we’d make more money.

Then there’s Lookery, Scott Rafer’s soon-to-be-launched Facebook app ad network. And fbExchange. Whaddya bet, though, that Zuckerberg & Co. will come up with something that surprises us all?

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Reader Comments

dave mcclure

July 12, 2007 07:51 PM

The only way that Zuckerberg sells out before the IPO is if the number is in double-digit billions, and the only 2 companies who can pull that trigger are Microsoft & Google. But i bet they won't, and i bet Zuckerberg won't sell until after the IPO, if ever.

Why?

Because the IPO market *itself* is the 3rd bidder at the table, and i bet the market will pay more than either MSFT or GOOG. Thus, as with eBay and PayPal previously, the deal won't happen until *after* the market sets a floor price for Facebook.

That said, if there's any way either Ballmer or Schmidt can get a deal done with Facebook, they should do so.. and before the IPO if possible.

But if i'm Zuckerberg, there's no way i say yes until after IPO.

for more thoughts on this, see my post on Facebook World Domination -- How Not to Pull a Semel:
http://500hats.typepad.com/500blogs/2007/07/marketing-faceb.html

- dave mcclure

nmw

July 13, 2007 05:26 AM

This is the way we sell the site, sell the site:

1. only .COM

2. 2.0 syllables

3. 2 O's

What else is there? Oh, yea: you'll need some bandwidth too (oh!).

Oh, and did anyone hear the story about some mobile service(s) not being available due to (oh, maybe :) bandwidth issues?

Why do people still think the Internet is only for teenagers? >> Simply because the Internet itself is a teenager.

Are there 1 googol Face-books out there? No, .COM is still under 100 million (the last time I checked). When is the last time any average Joe visited a library with 100 million titles?

Good luck, Facebook. Good luck, Microsoft. Good night, .COM ....

;D nmw

Lincoln

July 13, 2007 09:10 AM

How many normal people outside of the 5% elite or professional population have heard of Facebook? This Web 2.0 social network junk is like 1999 all over again. Facebook on its own will not even reach $1 billion revenue, ever. If the founder is smart, sell it while he can. If Facebook goes IPO, I'll be the one to watch when to short the stock.

Darin Carter

July 13, 2007 09:45 AM

wow ... very interesting ... I agree with Dave ... the market will end up the highest "bidder" in the end!

Darin

Abe

July 13, 2007 11:46 AM

Hey Lincoln, 30 million people are already on Facebook and they are adding 180,000 new people a day, so the answer to your question of how many people outside the elite 5% or professional population have heard of Facebook, I would say quite a few genius. Please go ahead and short the stock when you get the chance and then come back and tell us how that worked out for you.

Arthur

July 13, 2007 12:30 PM

I agree with Lincoln. All these "social engineering" web site means only one thing ... there're simply too many folks out there, and they've nothing useful to do.

Who's got the stupid idea ... connecting people at work places? Talking about cost cutting ... there you go.

Randall Newton

July 13, 2007 01:18 PM

Social networking for personal reasons is a nice gig. But social networking will really take off when people start harnessing it for work. But we already have a name for it there--collaboration. When Facebook masters collaboration, then it has a chance to be the next skyrocket success story.

Lincoln

July 13, 2007 06:13 PM

Re: Abe.
I'm a Facebook generation user (under 25) and I have been through the dot-com bubble as an active investor. I did not lose money overall in the market because I knew when the hype didn't have much further to go. In addition, I have experience running a technology startup in a different sector.
I used Facebook, Myspace, Friendster, Classmates.com and even one of the very first “social” web site (albeit primitive) Geocities, but I don't use it actively because it offers no real value to me. Although I am sure it does many people. Also, I think you take their user base too figuratively. I have three accounts on Facebook and know many people who have duplicates (for various reasons). Another point to consider, many users are using several Web 2.0 sites and this inflates the statistics. So 10% of the US population, if you don’t consider duplicates, no small feat.
Back in the 90s, Facebook has a great prospect to become a public company and drag along for few years. But by the same token, so did many promising companies who achieved explosive growth but never reached the market expectation.
I never said Facebook wasn't a good idea. I just expressed my lack of confidence in it to become and *sustain* as a public company as big as people hype it to be at this point in history. For example, Vonage is a great idea and offers very useful service, and they have millions of PAYING customers. But when it comes to the stock market, it didn't seem so. The market judges companies on more than how many users they achieved or how many page views per month. Venture Capitalists always want an exit, so they judge on the number of eyeballs, but they don’t care after they exit. Ultimately, even if they do survive as a public company, will they live up to their expectation? If this was 1997, I would invest all I have, but it’s a different era.
I can be wrong about Facebook with all my skepticism. However, I speak as the voice of a user. I also speak as a potential investor. If I short the (future) stock at the appropriate time and the market proves me wrong, then I will take my loss. Ultimately, no one but the market can judge in the long run.

Catie

July 13, 2007 08:17 PM

http://www.reachstudents.co.uk/blog/2007/07/11/facebook-advertising-warning/
Facebook advertising brings poor results
July 11th, 2007 by Luke
Facebook is the website du jour, but in Reach Students' experience it delivers appalling ad clickthroughs.

We've run four targeted campaigns this year using its flyer ads, and each time the results have been disappointing.

Our most recent campaign saw 1.4 million page impressions delivered at specific universities – and only a 0.04% clickthrough rate. Ouch.

When we first experienced poor results earlier this year we looked carefully at creative and planning. Further experimentation saw a variety of quite different offers and creative approaches. What kept us going was the fact that others had anecdotally mentioned good returns from Facebook ads.

Yet our results did not improve.

Baffled, we did some research and discovered that actually we are not alone.

Valleywag finds that 0.04% is pretty much the average when it comes Facebook clickthroughs - note that they are talking about banners as well as flyers.

There is varied speculation as to why the clickthroughs are so shockingly poor on Facebook. Some have cited the fact the site is essentially messaging orientated – rather than content orientated - meaning that therefore users are in no frame of mind to slope off down trails.

I don't buy this. As a long time Facebook user myself I find myself inadvertently following trails like a distracted sniffer dog. Similarly I nearly always click on flyers when I see them. I click them because their restrictive nature (there's little space to work with) means the advertiser often has to be clever, and I am usually intrigued by the offer.

Many of the flyer ads I've seen have been very clickable – much more so than typical banner ads. That said, I actually don't see that many flyers on my Facebook travels. Nothing like the amount that are displaying on my network, according to the flyers board.

It remains a mystery to me why such perfectly targeted ads with highly relevant messages perform so badly on Facebook compared to other sites - often sites where the targeting is less precise.

Until solved, I think we'll stick to PR initiatives through the site – such as our work for Avenue Q that generated over ¼ million mini-feed messages through user profiles. And on a budget significantly smaller than it costs to buy the same number of Facebook clickthroughs.

In fact, at least $199,000 smaller!

Posted in Social networks, Online marketing |

21 Responses
Michael Clarke Says:
July 12th, 2007 at 10:25 am
On a much smaller scale, we've also been trying out flyers with similarly poor results. On the other hand, the Facebook group for the student services organisation I work for has turned out to be a great laboratory for our staff to learn some tough lessons about social media which we'll be applying in the future.

robhyndman.com » Blog Archive » Facebook - a .04% clickthrough rate? Says:
July 12th, 2007 at 10:43 am
[…] The juxtaposition this morning of John Batelle's post on Facebook's stratospheric valuation, and Reach Students blog's report of a "shockingly poor" .04% clickthrough rate on Facebook campaigns, is at the very least jarring. Related Posts […]

K R Says:
July 12th, 2007 at 12:05 pm
Well personally, I just use an adblocker.

No ads, no problem, in my view.

xman Says:
July 12th, 2007 at 12:05 pm
Mystery? Students are intelligent. They are not taken in by advertising and so don't click. Why would they want to? Also lots of them run with ad blocking software so won't see the ads. I wasn't even aware that Facebook had ads…..

» Facebook, show us the money | The Social Web | ZDNet.com Says:
July 12th, 2007 at 12:17 pm
[…] With Facebook's heritage as a social network for students, it must the perfect platform for advertisers hoping to penetrate the college campus, right? Wrong. According to a UK consultancy firm which specializes in student and graduate recruitment marketing, click through rates have been on the extremely low side — 0.04% based on 1.4 million impressions — leading the company to abandon Facebook ads for the foreseeable future. This isn't the first time we've heard of poor ad campaign results from marketers using Facebook. […]

Luke Says:
July 12th, 2007 at 12:27 pm
Xman writes: "Mystery? Students are intelligent"

The mystery surrounds the poor ad clickthrough rate on Facebook when compared with other sites where a similar (mostly intelligent) demographic is found.

I agree students are intelligent. I agree so much that I describe my business as 'Digital marketing to intelligent youth'!

Are you saying only dumb people click ads?

You may be thinking here of 'ads' in terms of those intrusive buzzing flies you have to swat or bouncing smiley banners…but the flyers I ran were generally promoting proven content, were neatly integrated with the Facebook mood and were pitched to specific uni networks.

Those that say 'what ads - i didn't know facebook even did ads!' kind of illustrate the point here too. How come people aren't seeing them?

Students are tech-savvy, but I don't think the Ad Block factor explains everything. I'd certainly be interested to see figures on Ad Block take up among UK students.

Also I wonder if Ad Block identifies flyers anyway? They are not served remotely - unlike their banners - and I imagine they get through as an integral piece of the page??

Further Facebook Monetization Problems at Oliver Thylmann's Thoughts Says:
July 12th, 2007 at 12:33 pm
[…] So Facebook is worth $8 Billion. I agree it is worth a lot and it can be something that is very powerful in the future. I actually believe it will. But the $8 Billion are surely not based on current revenue. They had 15.8 Billion Page Impressions in the last month. Let's presume they have all available inventory sold. Judging by this post they would make $2.6 Million a month, so $30 Million a year, meaning $8 Billion is a price to sales multiple of 266! And if you take this post, then you will start to wonder if they are fully booked because the ads do not really work well. […]

This Post is Wrong: Facebook is and will be a monetization machine « John Furrier Says:
July 12th, 2007 at 1:38 pm
[…] This Post is Wrong: Facebook is and will be a monetization machine This post today says that advertising isn't working on Facebook. Well the post missed the point. So did John Battelle. Ad products and standards haven't yet evolved for the real value of Facebook - the communities. You can run a poll, give a gift, look at a banner…bla bla bla… The users of Facebook are savvy. So are the top advertisers. Look for a major ad buy on Facebook by a big player - no doubt it will happen soon. […]

Jackson Says:
July 12th, 2007 at 1:56 pm
I am thinking about running a small local Facebook ad campaign for my retail clothing store in Nashville, TN. Do you have any pointers for maximizing Facebook ad campaigns? Or is it just a total waste?

Owen Cutajar Says:
July 12th, 2007 at 1:58 pm
I'm with K R above. My browser has an ad blocker which blocks anything that might distract me from what I'm trying to look at.

I hadn't even noticed that FaceBook had ads till just recently …

Dave McClure Says:
July 12th, 2007 at 2:01 pm
Yeah, basically this same point was made on the Pro*Net Advertising blog by Muhammed Saleem, but i think they're both missing the point.

Advertising sucks on Facebook because *CPM-BASED ADVERTISING* sucks, not because Facebook sucks.

The real opportunity is in developing Facebook apps that engage users, and draw them into more meaningful conversations with specific workflow relevant to the type of products & services they want — if you do that, then the mktg/adv opportunities will become readily apparent, and will take off like a rocket.

for more thoughts on How to Market Facebook Apps & Be a Better Lover, see my post here:
http://500hats.typepad.com/500blogs/2007/07/marketing-faceb.html

enjoy.

- dave mcclure

Luke Says:
July 12th, 2007 at 2:26 pm
Hey Dave - I certainly don't think Facebook sucks, and I am with you on connecting through apps (a very good way to go I think). The post was more simply about the fact 'traditional' ads on Facebook don't work that well at all.

Jackson - I would take Dave's advice and build an app! If you can't afford that I'd look at doing something through groups. You might want to give the flyers a go - they are SO cheap, it doesn't cost much to see for yourself. Make sure you set up analytics so you can track results.

Does Facebook Advertising Work : The Last Podcast Says:
July 12th, 2007 at 3:05 pm
[…] The minor battle of the morning today is about a post by Luke on the Reach Students blog. According to his experience, flyer ads campaigns on Facebook get an abysmally bad 0.04% clickthrough rate: We've run four targeted campaigns this year using its flyer ads, and each time the results have been disappointing. […]

How Facebook Can Fix Their Ads - The Unofficial Facebook Blog Says:
July 12th, 2007 at 3:27 pm
[…] There has been a bunch of buzz today about how Facebook advertising produces poor results. Valleywag has also confirmed that the average click through rate of Facebook ads is 0.04%. This is horrendous. A few years back I tested out a $15 flier to see how effective the ad would be and I experienced the same thing. Why is there such a horrible click through rate on Facebook? According to Luke of the Reach Students blog: There is varied speculation as to why the clickthroughs are so shockingly poor on Facebook. Some have cited the fact the site is essentially messaging orientated – rather than content orientated - meaning that therefore users are in no frame of mind to slope off down trails. […]

HipMojo.com - Main Street Meets Madison Avenue, Wall Street and Silicon Valley » Memo to Facebook Advertising Team Says:
July 12th, 2007 at 3:34 pm
[…] Valleywag first reported on Facebook's abysmal click through rates (CTR), then today we read one more account of how Facebook yields very low CTRs: Our most recent campaign saw 1.4 million page impressions delivered at specific universities – and only a 0.04% clickthrough rate. […]

Facebook is a trailblazer... its ads are not Says:
July 12th, 2007 at 3:42 pm
[…] The Reach Students blog just released an interesting article on the lackluster performance of Facebook based advertising: "Facebook is the website du jour, but in Reach Students' experience it delivers appalling ad clickthroughs. […]

Justin Yost Says:
July 12th, 2007 at 4:31 pm
I have to agree with #6, students click less and less on ads, especially the more tech savvy and educated they are.

Yup, Facebook advertising isn't terribly effective « Ramblings of a Short Man Says:
July 12th, 2007 at 4:34 pm
[…] Yup, Facebook advertising isn't terribly effective There's some buzz today about the ineffectiveness of Facebook flyer ads. […]

CostPerNews » ValleyWag Doesn't Get Marketing Says:
July 12th, 2007 at 4:55 pm
[…] However, Facebook's deals with a completely different audience (and maturity level) than Valleywag or Gawker Media (with the exception of LifeHacker). So, for Owen Thomas to pontificate about Facebook's sure demise because of low CTR's is just silly and ignorant. The Reach Students blog notes that a campaign on Facebook drew a 0.04% click-through rate — a dismal response that's far from uncommon in advertisers' experiences. No wonder the site is scraping the bottom of the barrel to find advertisers. If Zuckerberg is to maintain his site's precious independence, he will have to figure out better ways for his company — and its advertisers — to profit from its rapidly swelling user base. […]

Hal O'Brien Says:
July 12th, 2007 at 5:07 pm
"Are you saying only dumb people click ads?"

Yes.

More than that… Only dumb people *place* ads, as there's no empirical evidence that ads lead to sales.

More than anything, what you're observing here is the beginning of the end of all advertising-based media — for purely profit-based, capitalistic reasons.

Advertising delivers zero value to shareholders specifically, and companies generally.

You can look forward to massive shareholder lawsuits against management teams dumb enough to continue to use ads in the face of the lack of empirical support.

links for 2007-07-12 : Alistair Brown Says:
July 12th, 2007 at 5:20 pm
[…] Reach Students blog » Blog Archive » Facebook advertising brings poor results It remains a mystery to me why such perfectly targeted ads with highly relevant messages perform so badly on Facebook compared to other sites - often sites where the targeting is less precise. (tags: banner advertising facebook CTR) […]

Scott Rafer

July 16, 2007 12:45 AM

Thanks for the mention. We're building Lookery partly out of great confidence in the Facebook people -- it's definitely a two-edged sword. We think that there are some large gaps that they'll avoid filling in themselves as they'll make more money if their developer base does it for them. We're trying to live in those large gaps. We'll see how good we are at it.

August 8, 2007 08:27 AM

Interesting battle between facebook and myspace, but isn't it enough crammed that we really don't have any space for more social/personal networking sites?

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