Microsoft Values Facebook at 15 billion.. Domains Name Valuations in a Bubble

http://www.bloomberg.com/apps/news?pid=20601087&sid=ah_myY3uN0pE&refer=home

I am consistently dumbstruck that deals like this barely raise an eyebrow, while individual domain names, the foundational elements of the Internet, get compared to tulip manias and bubbles.

It's a strange upside down world we live in.. Domain name monetization has been going on in much the same way since adult webmasters began selling monthly memberships to porn sites in 1995 (3 years after the birth of the modern web browser) ..  Today we have paid search monetization sites for virtually every product and service under the sun. Many are moving away from straight parking toward lead generation, arbitrage, content delivery and pay-per-unique implementations.

But these simple sites which for years have made money in the most benign of ways are 'bubbles' while the publicly listed internet economy, consisting of plates spinning on the ends of pool cues is accepted as foundationally sound and airtight.

All a fellow can do is smile, shrug and keep cashing those checks. It's too tiring and unproductive to pen a counterpoint to each person who don't understand.. or who doesn't want to understand.

Suffice it to say that the Internet has already crashed and burned once ..  domain names did not experience that shock..  If there is a redux of 2000/2001 you can expect domain names to perform in a similar manner as before.

I'm not so sure all of Facebook's 15 Billion will come out the same way.

Comments

[Tony]

The EVAL could of been , 50 billion, it didn't matter, Microsoft got what they wanted for about 250 Million, which google paid 1 Billion for to myspace.com, so microsoft got off cheap to CONTROL the advertising.

This was about control of the advertising, who cares what the round evaulated them at. If they go public, real investors will not care they will only want the management to show them the money, which google does and facebook is only worried about breaking even.

Watch the video from web2conference.com

[Josh]

Microsoft's people now get to say they own part of FaceBook.

Perhaps buying into cool. Buying into the currently most popular social network on za planet.

Will it give them an edge in promoting themselves within Facebook?

Will they have an edge if they want to offer their search tool embedded into Facebook, or promote some of their other products to those using Facebook?

Quick thoughts off the top of my head.

[Danno]

Hi,

Sure is funny...

Microsoft a company that made its 'bones'(little mafia reference...lol) being a LEADER...has spent the last 8 years being a 'follower'.

Lets look what happens when your company turns into a 'follower'...instead of a leader.

Tried to follow Google and beat them in Internet search.

Result: Failure ~ Multi-Millions (Billions?) of dollars wasted.

Tried to follow Apple: Result: Failure (Zune)

Thats just two examples...there are more than a few more with regards to MS.

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The REAL future in all this social networking and web 2.0 / web 3.0 will reside here.

A 'relationship' between the Internet,TV and the Home.
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"“EOS”, its “entertainment operating system”...in other words, a white label social networking service which ties in online and the digital home, and community.

http://www.paidcontent.org/entry/419-ciscos-entry-in-social-networking-world-adding-value-to-the-network/

___

$240 Million for 1.6% in a company with almost no revenue??...

Are you %^$ kidding me?

GREAT for Facebook!(got to love that part of the story)

And cowboys.com is NOT worth $275K to the DC's?

I have a news flash...

People (advertisers & publishers) are getting tired of these 'contextual ads'...they been around a pretty long time now...they may be the 'present' advertising choice...

But... certainly NOT the future of effective advertising monetization or for getting and keeping customer's.

Just put me in the camp that know's nothing about nothing...because I don't get this deal...from the MS perspective.

This deal seems to be nothing more than paying to use a website's space in order to run a huge 'adsense website' publishing campaign.

Peace!
Dan

[Snoopy]

"Suffice it to say that the Internet has already crashed and burned once .. domain names did not experience that shock"

Are you sure about this?, from what I can see of it the market came down a good 90% after the last crash. If one looks at a list of the highest sales ever for domains there is a large gulf between about 2001 and 2005.

***FS*** You know Snoop, I really never saw that.. never saw any price adjustments on good names anyway.. never saw any difference in traffic. Things went along pretty much the same as now.. The guys selling a set of hotb2b4u.com names went away.. Van neeste and his 24hr names went away.. generics (single word and compound phrases) weathered the storm pretty well.

[Danno]

Hi,

Would it not be better for MS to buy say 'firefox' (something they understand) and take away the current 'Google' relationship with firefox. Maybe some 'Anti-Trust problems I don't know...

But unless I'm missing something...

MS better start having some 'orignal thoughts' for themselves...sometime this Century... or its going to be a very very long time before they make a profit on anything other MS software.

Peace!
Dan

[Snoopy]

"$240 Million for 1.6% in a company with almost no revenue??...

Are you %^$ kidding me?"

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Almost no revenue?, the are expected to have revenue of around $150million this year (3 times higher than 2006),

This isn't tulip bulbs, it is an ultra fast growing company with already solid revenue streams and is fast catching up to Myspace (Myspace now has around $800-$1billion in revenue).

Here is another comment on it,

"MySpace will reportedly do $1 billion in revenue this year, only a year or two after finally getting serious about selling ads. Facebook's sponsorship rates have doubled in 5 months. Google's doing $16 billion in revenue. Is it really so unreasonable to think that Facebook might hit a $1 billion run-rate within a year? In a word, no.

So here are some updated Facebook revenue estimates:

2007: $150 million ($200 million? $250 million? Who cares?)
2008: $750 million
2009: $1.5 billion"

http://www.internetoutsider.com/2007/07/time-to-update-.html

[Robb]

Let's face it, millions of people use Facebook and MSN getting to put their ads on this growing site is nothing but a plus for them. MSN has lost a lot of deals over the years, it's about time they did a big one like this that makes sense for them. The price is peanuts to their cash holdings. As for text ads, nothing beats relevant text links on a light background, it's been proven and proven again to beat banners. If anything people turn away from the flashy banners and video ads. People are used to getting information they need in text format (outdoor signs, classified ads, phone books, directories), it's easy on the eyes, and if anything, I think most people accept this format if it's presented in a non-junky way, as opposed to getting tired of it. If not text advertising, then what? The evolution will be to pay per call, or pay per action text ads, but they will always be around IMO.

[Danno]

Snoop...they are way behind the 'curve'

""unreasonable to think that Facebook might hit a $1 billion run-rate within a year?""
__
MS just paid $240 million for 1.6% (1.6%)... its not like they even own anything.

$15 Billion?...you could smoke 'crack' ALL night...and not come up with a 'valuation' like this.

Who gives a flying #@## if facebook does 1 billion next year or 2 Billion the next year?

THE MATH IS NEVER GOING TO ADD UP ON THIS DEAL...for MS...It adds up just fine for FB.

With not one 'orignal idea' in 8-10 years...

All of a sudden this is a good idea?

I don't think so.

The only thing they did today...was SAVE Google $240 million.

Do you not 'get' what they just bought...is not leading edge?

Facebook...will 'almost' be non existent 3 years from now in any meaningful way.

Meaning Facebook...will be not-relevant.

Therefore...

Very hard to make back a $240 million investment and show a profit...even if they had 20 years...which they do not have.

1.6% ownership???...do a 'double think'...

I have seen...along with may others 'clips' of Steve Ballmer...acting like quite the...whatever...

I always thought it was an act...

'Sports Fans'...its NOT an act...

This deal makes no sense...on any level

Facebook...is nothing more than a extended 'frat party'...soon as everyone wakes up and shakes off their 'hang over'...

Party over for MS.

JMHO...as always...

Peace!
Dan

[David Wrixon]

It is about Brands. America is huge on brands. MacDonald's and Coke leave me cold, wondering why I am paying so much for unpalatable crap. But you cannot deny the commercial influence they have had and still have. Mind you it leaves you wondering where exactly the US is in the value chain.

***FS*** Well said David.

[Andrew]

I don't think MSFT is valuing the business at $15B. A big portion of their investment was to lock up the international ad business on facembook, which could be worth over $240M in profit over the next few years.

[Danno]

Hi,

I am a simple guy with a simple mind. This pretty much reflects my point of view. This was and is the main problem with this deal...

And this problem (dark little advertising secret) that effects myspace and Facebbok both...is going to get more 'light' shine on it...and then as the advertisers 'get this'...party over for MS.

I have known what many have known for the last 2 years or so...with regards to myspace...

The traffic is some of the WORST converting traffic on the Internet. And now, if this article is any indication at all...advertising anything on Facebook will be the joke of the advertising world.
___

Quote:

So Facebook, which has been letting people know it's on track for $150m in revenues in 2007, must be an awesome advertising platform. Well, sorry to rain on the parade, but no. Media buyers -- the agency people who book campaigns -- report that the college social network is a truly terrible target. They're mainly students, with low disposable income, of course; but, beyond that, the users appear to be too busy leaving messages for eachother to show much interest in advertising. Facebook's members appear indifferent even to movie advertising aimed at their demographic. Clickthrough rates, the percentage of time users click on an ad, average 0.04% -- just 400 clicks in every 1m views -- according to one report seen by Valleywag.

Isn't that what one would expect on a highly social site, on which people interact rather than absorb? Well, even News Corporation's rival social network, Myspace, is a better medium for marketers: for a similar set of advertising campaigns, its click rate, a measure of the audience's engagement, was 0.10%, more than twice Facebook's. Complains one media buyer who spent heavily on a range of blog and social properties: "Facebook was consistently the worst performing site on just about every campaign we ever ran with them."

Mark Zuckerberg is, by all accounts, one of the smartest young entrepreneurs in tech. Facebook is Silicon Valley's standout private company. It has good prospects as an independent company. The deal with Microsoft, by which the Redmond software giant has guaranteed revenues in order to get its text ad system on Facebook, will underpin revenues until 2009. It preserves the illusion, at least, of Facebook as an advertising business. But, at the rate at which Microsoft must be losing money on the Facebook deal, one can't imagine that deal will be renewed. Facebook will have to find other ways to tap its users for revenue. More on that, later. "" End Quote

http://valleywag.com/tech/advertising/facebook-consistently-the-worst-performing-site-242234.php

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Like said in my earlier post...the 'math' is never going to add (ad..lol) up.

Peace!
Dan

[Danno]

Hi,

Sorry...I was reading over a bit of my first couple post...and they looked kind of 'harsh' today for some reason... as I read them. So, if they seem harsh to anyone personally...they were not meant that way.

I do not personally use Facebook...I am sure its great and it will be around in some form for at least a few more years.

As for MS...I hope thier advertisers enjoy those '400 clicks per million'

They would have been so much better off buy $240 million in generic keyword domains.

1.6%?

Peace!
Dan

[Robb]

Today's Microsoft first quarter results: "The world's largest software maker said net profit in its fiscal first quarter totaled $4.29 billion, or 45 cents per diluted share". So after the Facebook deal they still have over 4 billion left over from only one quarter's profit. Facebook is a growing social site and being able to put ads on the pages could be a great long term deal. Sure Facebook could flame out, but it's a great domain, the owner is dedicated, and it chances are it will last like Amazon, eBay, Yahoo, and MySpace. If MSN had lost out on this deal, where else did they have to turn? Not that I love Microsoft, but for them this is a good deal.

[Snoopy]

"They would have been so much better off buy $240 million in generic keyword domains.

1.6%?

Peace!
Dan"

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I'll bet people who sell furniture are probably saying they should have bought furniture stores :)

Whilst they could have bought domains on lower multiples, perhaps 30 years revenue instead of 85 years, the revenue growth prospects are totally different.

[Click Medium]

The conversions will start to tick upward once they really begin to target the ads effectively. Do you think they aren't going to use all of that personal information that's stored in a profile (and that of their friends) to target ads more effectively?

If Facebook remains relevant (which I think it will) the $240 will be money well spent. MySpace which is horrible, buggy and overall one of the worst user experiences in existence is still wildly popular and will continue to be so.

And yes a big part of it was to keep the advertising business away from Google, Yahoo or Ask.com.

It's the current power-play of all social networks. Give us loads of cash to keep your competitors out of our pond.

A lot of you guys (domain mentality) continue to think in terms of real (down to the minute) revenue. Value= $X Rev times X Multiple. That might fly (sometimes) in the domain industry, but not in any other business. There's more to it.

Frank, I bet if Facebook was knocking on your door and going to allow you to buy in for $20 Million (essentially pre-IPO) at the same valuation, you wouldn't hesitate to cut a check. Am I right?

[Danno]

Hi,

And before someone says its all about 'branding' or 'brand awareness'...

I still can not buy into that. I know part of...a big part...of advertising is 'branding'.

But in this case...

I do not think it would be a good idea for a large to medium size company to run billions of ad impressions with a banner of their company name or logo on any of these 'social networking type sites...heres why...

I think advertising on these sites is almost like if you invited 10 friends over for dinner and just a all around good evening to share...and its say 7;30pm and you just sat down for dinner...and the phone rings with a 'telemarketer' trying to 'hard sell' you a new roof or stocks or 'domain names'(lol)...your not going to have a very good impression of the person on the phone or their company.

I think company's can and will run a serious risk of having their 'branding campaigns' on these type of social websites...back fire...and instead of leaving good 'impressions' (lol) on their target market...they might just give their attended target market...a really bad impression of their company.

I think ads on these sites are view really negatively by the members of these social networks.

I know I would not want my 'brand'( my company name) associated with this negitive view of advertising...would you?

Pure and simple...Just not to place or setting to do branding or advertising...just like at 7:30pm when your in the middle of dinner...is not the time for me to call you and try and sell you a domain like: makemillionsadvertisingonsocialnetworks .com (LOL)

Just some 'food for thought'.

IMHO

Peace!
Dan

[Danno]

Hi Snoopy...thanks for the reply.

"Whilst they could have bought domains on lower multiples, perhaps 30 years revenue instead of 85 years, the revenue growth prospects are totally different."
___

So what am I not understanding?

That in 1-3 years there will be NO revenue growth in advertising on any social network...because of all the factors I mentioned in my last two post....revenue growth will be in a total 'free fall'.

Within 1-3 years... a 'chart' of the advertiser 'attrition rate' will look like Googles stock chart the last 4+ years...lol

Advertisers will use the 'exclude' option and will exclude these specific social network sites from their ad campaigns.

Why? Because right now they are complete waste of time and money to advertise on...and they have been that way for at least the last 2+ years.

I just don't see this changing...sorry.

Looks like we are just going to have to 'agree to disagree' on this one snoop...I think we are way to far part in our views on the rate of revenue growth...resulting from banner and contextual text ads as it relates to FB.

___

Thanks for your reply... Click Medium.

"Do you think they aren't going to use all of that personal information that's stored in a profile (and that of their friends) to target ads more effectively?"
____

I know almost nothing about this at all...but privacy agreements and policys from sites like this can be a real tricky deal.

I doubt it says they can use any and all information about their members to sell them anything and everything under the sun and in any fashion.

Going this route is just going to bring nothing but lawsuits...and lots of them.

Its not going to help advertisers enough anyway...'super duper' targeted ads gleamed from their members private information still will not raise the CTR enough to keep advertisers in this game.

Bottom line is that people hate advertising on their social networks...your invading their 'personal space'...and it seems that no matter what your selling...

Its like all the advertisers are trying to sell all 'beef products'... and the social network sites members...are all 'Vegetarian's'...lol

And they are not buying it...and IMHO they are never going to buy it.

Wrong time... wrong place...for advertising.

JMHO...

Best to all,
Dan

[Snoopy]

"I do not think it would be a good idea for a large to medium size company to run billions of ad impressions with a banner of their company name or logo on any of these 'social networking type sites...heres why..."

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You are dreaming...It is like saying who would want to advertise at night on tv when people are having dinner...you know prime time? And why would anyone want to advertise on whole lot of parked domains?

The results are in and Facebook already has a lot of advertisers, to the tune of $150 million per year, it's competitor Myspace is already making as much money as the entire domain parking industry combined. It is spitting in the wind to think advertisers will suddenly decide they won't want to advertise.

[Click Medium]

Dan,

The basis of traditional advertising (print, radio tv) the core three is not so much about selling you on the particular service or product, that's part of it. But more it's keeping their brand in play, or in your awareness.

Also some part of it is that companies don't take a huge departure from the model that they've had in place for hundreds of years.

Traditional fortune 500 companies are learning that there's a great ROI and internet advertising offers incredible information regarding marketing. Don't forget how flawed traditional TV/radio advertising tracking is.

And you're wrong about the embarrassing ads you see running on social networks. Those little flash game banners that are so gratuitous are very, very popular. Why do you think Orbitz has a site dedicated to those flash games.

And again you seem to be making an equation with dollars and sense regarding more effective means of advertising. The stats that are provided by research companies that make claims that advertising on social network converts only 1 in 2500 might be correct, but we really don't know how they compare to traditional advertising mediums. Tracking and ROI analysis is king, and certain businesses have never been able to give definitive answers.

[Robb]

This is too interesting to not keep commenting.

The point about Microsoft buying generic domains is a good one, but they have billions of other dollars to do that with if they choose. No harm in diversifying your investments.

Advertising on the internet is accepted by most people now, just like tv commercials and ads before movies. It can be done in a wrong way and a right way, as long as it's not intrusive, people will accept it especially on free sites. Today's kids coming online know nothing else and think that's just the way it is. And social networking is a great place to advertise, groups form based on interests, making it easier to target the advertising. Show car ads to car buffs, show music ads to music fans, etc.

When MySpace got bought for 580 Million many thought it was too huge a price to pay. No one thinks so anymore. If Facebook keeps growing this will be seen as a great deal in time.

[Danno]

Guys...lol

Robb...thanks for the reply.

"It can be done in a wrong way and a right way, as long as it's not intrusive"
__

What I am saying is in every way the members of these sites are telling every advertiser that you have cross this 'intrusive line'...and might be crossing it in a big way when it comes to these social networking sites. And in the long run the negatives are going to out weight the positives for most of them.

I am no advertising expert...but I do understand all of your very fine points, and 'normally' I would agree with almost all of them.

I am just saying,

In the case of these 'social networking' sites... Its not going to be pretty within 3 years when lot of these advertisers strat to see this.

Just ask the guy in the article in my post above.

Again like most things...only time will tell.

Its been 'spirited' and I enjoyed this thread...but...

I feel I have kind of taken over this thread by making so many post in it...I am going to have to give Frank his blog back on this one, before he 86's me...lol

Best,
Dan

[AJ Martin]

I saw this as MSFT paying $5 and change per subscriber and participating as a partial owner rather than an advertiser so they get some owership upside to their ad spend.