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Tuesday, January 25, 2011

against the wind: Facebook reaching the 50 billion $ evaluation mark ? bubble time...

Not so long ago, I mentioned facebook being valued at 41 billion USD. Now it is reported to have passed the 50 billion $ valuation. As facebook has reached profitability quite early in its life, one shouldn't be too surprised at these successful capital raisings. As is common with internet startups (and facebook can still be called a startup), investors do not base evaluations on current profits, but on dreamt of potentials.

In addition to the early arrival at the profit mark, Facebook's growth has been phenomenal.
only on last  july has the more than 500 million active members statistic been reached and already there are reports that the 600 million active members mark has been passed.

Still, the gap between facebook's profit (estimated at a few tens of millions) and facebook's current estimated worth, should be bothering to anyone in his sound mind.

Especially as facebook is indicating its need in so much more cash.

More bothering in my mind is the business model of facebook. or more accurately, its deficiencies.
Google has found quite a reasonable balance between privacy and the usage of user's data. I really doubt facebook's stance there.

I've recently assisted a friend tweak her privacy settings in facebook, and while showing her the ropes I was very impressed to discover that her teenage daughter has already done it. Assuming teenagers are already more global in their spirit than previous generations, facebook is in trouble. A strengthening privacy awareness among its youthful members means users are going to be more and more protective of their data.

With less shared data around Facebook the social graph's worth declines accordingly.

In summary: At this point in Facebook's life, evaluation shouldn't be done by member's number, or evolving profitability but by a much more relevant data: Facebook's ability to produce commercial insights regarding member's preferences. Despite what looks like an emerging epidemic of "like" buttons, the real question is what usage can be made in these "likes". If what I've encountered personally is indeed an indication of a trend, Facebook may have a serious problem in a commercial usage of its members.  This problem may be the reason for a  need for more cash, but it is also a reason for devaluating Facebook.

As far as my analysis goes, as long as privacy issues regarding potential data and its potential usage are not solved by Facebook, any increase in Facebook's value, shouldn't be attributed to real economic considerations, but to the re-emerging internet bubble.

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