On: Facebook, and Hypothetically Speaking.


Facebook is worth $10 billion. At least, that’s what it’s worth if you believe today’s news reports about the site’s $200 million investment from a Russian firm.

But here’s the catch: the $200 million is real. The $10 billion is not.

It’s simply hypothetical.

It’s what Russian-based Digital Sky Technologies believes the social networking site could be worth, assuming that Facebook can cash in on its millions of users. But it’s all just theory. Two years ago, when Microsoft invested $240 million in Facebook, the site was valued at 15 billion hypothetical dollars.

So how did a site that’s watched its core metrics — users and page views — soar over the last two years become $5 billion less valuable?

I could give you a theory 1.. But it’d be just that: a hypothetical.

Hypotheticals are the reason why Cubs fans get excited every Spring, why “Dewey Defeats Truman” didn’t look that absurd, why “The Godfather III” seemed like a good idea. Sometimes, you want things to be true. Sometimes, you need things to be true. Sometimes, you’re willing to deny all logic to make it so.

Hypothetically, nothing is impossible. Hypothetically, all men are created equal. Hypothetically, the American Dream lives on.

Dreams are great. Action is even better. But if there’s anything I learned in a high school science classroom, it’s that proof trumps all.

Facebook — the site — is the real deal. Millions of people are using it to connect and share and live, and that’s undeniable.

But any dollar amount attached to the site is more than just hypothetical.

It’s hype.

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1.) That theory: Facebook’s real value is in that it has access to data about millions of people. Facebook knows if you like the Goo Goo Dolls or horror films; you’ve posted it right there in your profile. Hypothetically, Facebook could convince users that it should be able to take that data and sell it to advertisers — say, concert venues that might be hosting your favorite band, or movie studios. In turn, those advertisers would provide microtarged ads to Facebook users, and the site would be worth beyond its $10 billion valuation. But they tried that in 2007, and users balked, partially because Facebook wasn’t even doing a very good job of delivering these microtargeted ads. I think a Facebook that’s — and this is key — non-intrusively gathering data for advertisers would be worth $15 billion. A Facebook that can’t do that — by which I mean to say, the Facebook you use today — is worth considerably less. Of course, they could always make actual dollars by doing as Google did in 2004 and putting out an IPO. >back to article

H/T to nobihaya for the photo of Facebook founder Mark Zuckerberg introducing Facebook in Japan last year.