Long-time readers (all three of you) know that I have a great deal of respect for Fred Stutzman’s Unit Structures blog when it comes to all things social networking.  His roundup on the Microsoft-Facebook deal is even better than the one I would write if I had the time.

With respect to the 15 billion dollar valuation, I know alot of people feel it’s ridiculous, but as I’ve discussed before, if you look at the potential value of the data Facebook has, relatively small changes in their estimated probability of success add up to many billions of dollars.

The problem right now is that the confidence interval around that probability estimate is pretty wide, and Facebook’s challenge in the next year is to start tightening it up.  I think it’s safe to say that Facebook’s monetization strategies have been quite conservative thus far– their primary focus has been on building up the user base as much as possible and keeping those users happy.  The money they received from Microsoft and a couple of hedge funds gives them opportunity to build out the world’s best data mining operation, and even more importantly, it gives them the time and the freedom to experiment with different ways of using that information to create value.

Sergey was a little snippy about Facebook the other day, indicating that he felt like Google was better off because of the discipline that was required when they were building a company during the bust.  But it sounded to me like there was a tinge of jealousy in that statement (not to mention a general annoyance with Facebook for stealing many of Google’s engineers)– after all, I’m pretty sure Sergey would have taken 750 million dollars for 5% of Google back in 2001.

Labels: tech, social networks

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