It’s a good week to be Mark Zuckerberg. First, it’s always good to be 22 years old (or so I remember). Second, it’s nice to have a little nest egg to fall back on. In his case that’s Facebook.
If you don’t know what Facebook is, don’t worry. You’re probably not a college student and here in the 21st Century, hipness is on a need to know basis.
Briefly, Facebook is a social networking site, like MySpace. Actually, it doesn’t make any difference. It gets a lot of traffic from people advertisers want to reach. Currently, traffic = revenue.
When Viacom offered $750 million for Facebook in January, he asked for $2 billion and was rebuffed, according to a person involved in the negotiations. Now, he remains undecided about the latest offer, made in the last few weeks by Yahoo.
That latest offer is for around $900,000,000 (the numbers seem to have more impact fully written out).
I don’t get it. As with the last Internet bubble, the numbers just don’t add up.
Let’s say the software, hardware, infrastructure for Facebook is $10,000,000. Oh, what the hell – make it $50,000,000. That’s got to be way high… really, really way high, but it doesn’t make any difference.
With $900,000,000 you could set up an online competitor to Facebook and spend hundreds of millions of dollars to promote it. Give away bags of money if you want – real bags of money. Buy the user’s allegiance away from Facebook.
How can that not be cheaper than buying Facebook outright¹?
What is the sense of buying a business that will bill under $50,000,000 this year for close to a $1,000,000,000?
Back before the Internet burst the first time, loads of companies where sold for immense sums. Broadcast.com went to Yahoo! for $5.7 billion. Click on Broadcast.com today – you just get Yahoo!
In April 1999, Broadcast.com was acquired by Yahoo! for $5.7 billion in stock and became Yahoo! Broadcast Solutions. Over the next few years Yahoo! split the services previously offered by Broadcast.com into separate services, Yahoo! Launchcast for music and Yahoo! Platinum for video entertainment. Yahoo! Platinum has since been discontinued, its functionality being offered as part of two pay services, AT&T Yahoo! High Speed Internet and Yahoo! Plus.
As of 2006, neither broadcast.com nor broadcast.yahoo.com are distinct web addresses; both simply redirect to yahoo.com.
The Broadcast.com sale wasn’t a total loss… at least it wasn’t for Mark Cuban, now owner of the Dallas Mavericks and HDNet.
So, Yahoo!, bon chance on this one. They can’t all be overpriced bombs. Can they?
¹ – This is by no means a rap on Facebook – a perfectly fine site. I’m kvetching about price, not content.