Facebook IPO – Is it worth $100bn?

The impending IPO of Facebook has got me thinking about whether it’s worth $100bn.   There seem to be a variety of views on whether it’s overvalued. Now with the price of the IPO increased again, is it hype around Facebook that’s driving the price or do investors really understand the future opportunities exist.

Facebook is only getting started! Sheryl Sandberg moved from Google after helping make them what they are today.  A powerhouse of advertising and innovation.  Sheryl knows all about advertising and networks.

I think there are a number of opportunities that Facebook could exploit and increase the valuation substantially.

– Competing with Google Adsense.

– Authentication and User Identity

– Payments

– Selling Data

One important thing to remember in all of this is the Facebok’s 900m users are the product, not the customer.  We forget this when thinking about Facebook and focus on the ‘front end’

Competing with Google Adsense and Doubleclick

Google has been very successful in display ads on third party sites.  Millions of websites use their ad network to make a little bit of extra money.  The challenge with Google has been that the selection and display of adverts is based upon limited information. They don’t really know anything about you when you visit a website and use the content on the website to display ads.

Now, let’s look at Facebook.  They know all about and individual.  with 900m users, they know a lot about a significant portion of internet users.   Now let’s take the Adsense model and apply to Facebook.  There are an increasing number of websites also using services like ‘Facebook Connect’ to authenticate users.  Take both of these together and you get:

‘Ads by Facebook’.

Targeted by individuals, their interests, geography, friends graph, activity etc.  Combining Facebook data with the sites’ data will generate significantly more targeted ads.

Revenue opportunity:  In Q1 2011, Google earned US$2.43 billion ($9.71 billion annualized), or 28% of total revenue, through Google AdSense.   And Google’s revenue here is only a fraction of the sites that could display ads.  In general, high traffic sites don’t use Adsense – most likely they use Doubleclick.

My guess is: $4-$6bn within 3 years. Probability that they will do this: 60%

Authentication and User Identity

Authenticating users is big business on the web.  As your digital identity is a valuable commodity and every site wants to be able to get people to ‘sign in’ we’re seeing Facebook as the default identity supplier.  Other efforts over the past 10years have failed – openid as one example.  The problem has always been getting people to ‘assign’ the identity to a provider.   Facebook, if they so desired, could start charging sites for this easily.  Even providing this service a pay-per-authentication would generate significant revenue.

My guess on revenue: $2bn-$4bn within 2 years.  Probability they will do this: 25% (still worried about user revolt!)


Digital payments are cumbersome at the moment.  Paypal does well in that space for small merchants who can’t get big bank payments services.  Banks are scared of Facebook, even thought they would never publicly admit it.  Facebook have payment details for millions, but only use them for Facebook Credits.  If they started enable a payments infrastructure for any site this would be significant revenue generator, especially as they will reduce the 30% FB Credit tax.  One thing to remember however, Peter Thiel was a founder of Paypal and has significant influence on the board of Facebook.  Will he go against the baby he created?

My guess on revenue: $4bn+ within 5 years. Probability they will do this: 40%

Selling Data

As we all know, Facebook is collecting large amounts of data about all of their users.  Large corporates wanting to learn more about their customers would kill for this data (if only they had the capability to understand it!).   If Facebook provided APIs to this data, not just the data points available with Facebook Connect, but anonymous behavioural data, the most significant data pool about user behviour is a possible large revenue earner.

I don’t think Facebook will do it!

My guess on revenue: $0bn in the next 5 years.  Probability they will do this: 10% (in the next 5 years).

Roll on the IPO.  Investors take note, especially skeptics out there, Facebook is only getting started!!!!


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