With the limit of one burger per customer, the maximum value is (users * whopper_cost), bringing the ceiling to 360 million dollars.
It should actually be a little less, since at some point there will only be 9 users who will have missed out on the flurry of unfriending, like victims of a fattening ponzi scheme.
Facebook made ~$200mm in 2008. It's pretty clear they could profit on those revenues, and instead are choosing to invest in further growth (with outside capital). Why is the parent comment's belief so widespread here on hn?
They took a $150 million loss in 2007, and then made projections for 100% growth (and hired 100% more staff) for 08, which we now know is a recession year.
That means they are still losing money. It doesn't matter if they have $1B in revenue, if it costs them $1.1B to operate, things are not sustainable.
I meant that they had ~$200mm in revenues, not profits. As I said, I think it's very clear that they can operate at a profit with those revenues, and are choosing to invest in future growth. Huge investment in growth isn't "sustainable", in that you can't do it forever.
It's fine if you think they're going to fail in their bid to take over the world -- I'm undecided, personally -- but it's silly to claim that they're "unprofitable" without acknowledging that they could be if that was their goal (or refuting that point).
> but it's silly to claim that they're "unprofitable" without acknowledging that they could be if that was their goal (or refuting that point).
But you do the exact opposite. You are claiming that they could be profitable but you don't back it up. I'm not saying you are wrong, just that you haven't flushed out your point at all.
I too could say that General Motors could be profitable, they'd just have to stop paying pensions, salaries and leases on equipment.
So the question to you is how can Facebook be profitable if they pay out more than they take in?
it doesn't matter how much money you have if you run out of cash.
The problem is that Facebook thinks its Google...when it is not. This is why they spend so much cash trying to hire a ton of people. Just to make people think they are bigger than they are.
What they are forgetting is that Google was profitable before they started hiring people left and right.
My belief is that with straight up direct ad sales and limited targeting ads, MySpace cleared $1B this year. That's the potential upper limit of how much Facebook can make with just straight up ad sales.
But having a much more complete understanding of relationships, Facebook wants to find something more effective and profitable than AdSense. That's what Mark Zuckerberg really pitched to everyone that has invested into Facebook: his team's ability to reinvent online advertising.
The products they have so far -- Beacon, Social Ads -- are kind of lame but Facebook Connect is getting pretty big and they have quite a lot of money and time to work on it.
But all this doesn't matter. Facebook isn't profitable! And somehow this affects hackers around the world.
Of course this would affect hackers around the world. Anything that Google, Microsoft, Apple, etc. affects hackers because so many hackers are employed by these companies. Facebook is the same way, the churn of ideas that goes through each of these companies matters because only through working with other hackers do hackers develop and refine their own ideas. Without these large companies subsidizing hacker side projects we wouldn't get any of the idea building that spins into new companies and growth for our economy.
Who would buy those ads? That seems to be Facebook's problem.
The 'platform' seems to be dominated by idle people who prefer free services that let them spend their day throwing virtual sheep at each other. That's not a particularly valuable demographic for businesses seeking to advertise their wares.
Much better, by far, to purchase targeted advertising on Google.
There is millions of dollar being made every day with Facebook ads. You can target them very specifically and drive large amounts of traffic cheaply.
No, it is certainly not Adwords. For some offers it doesn't work. For some it works better than search. Just because it's not search does not mean it's not an incredibly valuable marketing channel.
They will never be as profitable as Google because the CTR of the ads is pathetically low (compared to search) and the clicks are much less valuable, but there is massive traffic there. Even if they never develop the killer ad product there is still a big business there.
How did he arrive at the assumption that the connections are where Facebook derives the majority of its value? Doesn't most of its existing targeted advertising revolve around user-volunteered information, not information about users' connections?
Facebook is interesting in the event that any of its concepts around creating value really manage to take off. The concept of an open platform for app development could provide a model for next-gen end-user computing (barring net neutrality issues and the tubes getting clogged, etc.). Also, the virtual goods being exchanged on facebook and other online communities make up a billion dollar industry (http://www.marketingvox.com/virtual-goods-make-for-billion-d...).
This guys reasoning is faulty and he doesn't even know how facebook friendships work, so why would anyone take his funny valuation seriously? waste of time.
the network effect means that the top layer of connections are actually more valuable. But for individuals, the last 10 connections are either strangers (useless) or people you just met that you want to know better ( very important ). So this linear analysis is pretty bad. A slightly different algorithm could yield $180M or $18B.
I am not on Facebook at all, even if it is free because I just haven't seen the need for it. I might develop some apps for it in the future, but that's about it. I'm not on Twitter, Friendfeed or Myspace either...
over their lifetimes on facebook? i'd bet that facebook could easily get a substantial fraction of its users to pay that much every two years or so; whether they want to go that route is up for debate.
I think he's off here. Rather than 10 users being worth one whopper. I think it should be 10 connections are equal to one whopper. This would make FB worth a lot more than Kottke's $1.8 billion.
That is how he's calculating it. 1 user = 100 connections (on average), divide by 2 because the connections are two-sided, 50 connections, 5 whoppers per user.
It should actually be a little less, since at some point there will only be 9 users who will have missed out on the flurry of unfriending, like victims of a fattening ponzi scheme.