people keep talking about how Facebook platform is taking off (or not), and is Facebook catching up to / beating MySpace, but they're missing the real story.
imho, with the launch of Facebook Platform, they've not only already eclipsed MySpace, but also eBay, Amazon, & Yahoo... and in fact are now contending with industry juggernauts Microsoft & Google for the title of Most Valuable Monopolist (MVM) and the most likely to achieve World Domination.
Over the past 20 years, here's my list of successful MVMs:
- Intel = Most Valuable Monopolist, The IC (1980's-curr.)
- Microsoft = Most Valuable Monopolist, The Desktop (1990's-curr.)
- Cisco = Most Valuable Monopolist, The Network (1990's-curr.)
- AOL = Most Valuable Monopolist, Email + Gated Internet (1992-2001)
- Yahoo = Most Valuable Monopolist, Search Act I (1994-2000)
- Amazon = Most Valuable Monopolist, Books + New Goods (1995-curr.)
- eBay = Most Valuable Monopolist, Used Goods (1995-2004)
- Craigslist = Most Valuable (but mostly free) Monopolist, Classifieds (1998-curr.)
- PayPal = Most Valuable Monopolist, Online Payments (2000-curr.)
- Google = Most Valuable Monopolist, Search Act II (2000-curr.)
- Apple = Most Valuable Monopolist, iTunes + iPod (2003-curr.)
- MySpace = Most Valuable Monopolist, Social Networking Act I ==(2005-May 2007)
- YouTube = Most Valuable Monopolist, Online Video (2006-curr.)
- Facebook = Most Valuable Monopolist, Social Networking Act II (June 2007-curr.)
(i may be missing a few but i think i've covered most of the notables... feel free to pile on in the comments, and/or make corrections to dates above)
So it's been much discussed over the past few months about how Terry Semel fucked up by not buying Google for $3B in 2002, or more recently not buying Facebook for $1.6B last fall. I'm not sure they really had the money -- and certainly not the balls -- to pull the trigger on either of those, and hindsight is always 20-20. Ditto for eBay & PayPal, at least the first 3 times Meg Whitman tried to buy them out. She finally did the deal only *after* the PayPal IPO, and probably paid a shitload more than if she had decided earlier. But unlike Semel, at least she *did* make the right call eventually... and now she looks like a genius.
Now let's compare Facebook's fast-approaching domination of [personal] social networking & consider potential liquidity events, of which i'm pretty confident there are only 3 left:
- IPO in next 12 months
- get bought by Microsoft in next 12-24 months
- get bought by Google in next 12-24 months
Reviewing the history of PayPal's IPO & subsequent M&A, it's been said Meg passed on paying the price Peter Thiel wanted the first few times they met. Only after the IPO set a floor of ~$700M for the company (and after a perhaps ill-timed insider secondary offering a few months later set a ceiling) did eBay finally agree to buy PayPal for ~$1.5B. Again in hindsight, it was a steal -- PayPal has easily contributed 5x in value to eBay the past 5 years, and PayPal is now responsible for up to a full 1/4 of eBay's revenue. Meg may have balked thrice, but in the end she still got a damn good deal for eBay shareholders.
Fast-forward to today: Yahoo is now acutely aware of their error in not buying Google or Facebook when they had the chance. Perhaps in Semel's defense, it really wasn't clear Google & Facebook were on their respective paths to World Domination at the time Yahoo had opportunity to cut a [very expensive for them] deal. However, it's now become apparent that Facebook is absolutely an Irresistible Force & is quite unstoppable. What might have seemed expensive @ $2B a year ago now seems like a steal for $10B. (if you want to follow the lesson of swallowing your pride & making a good call the 2nd time around, talk to David Sze at Greylock. very. smart. dude.)
Yep, you heard me right: $10B with a capital 'B'. If you only consider the Facebook-Microsoft advertising deal alone (
~$900M over 3 years sorry my bad that was MySpace-GOOG deal... anyone know actual terms?... let's guess ~$50-100M/yr), those are the kind of revenues that makes it easy to think Facebook can do an IPO. And what kind of IPO would that remind you of? Hmm, i'd have to say it sounds similar to something named GOOG. Now i'm not an analyst, but with their growth & revenue, i wouldn't be surprised to see high-single to low double-digit billions in market cap for them... at least at the close of the first-day open.
Alright, so now let's consider alternatives to IPO... who's left who could buy them out? Well assuming Zuck is willing to sell to *anyone* -- and it's not clear that he would -- there are probably only 2 players remaining who would be motivated & capable: Microsoft & Google. They both have the dollars, and they both probably don't want to be left out in the cold on social networking.
Now, are either of them willing to buy Facebook for a $10B+ number prior to IPO? Very unclear. But if i'm Eric Schmidt or Steve Ballmer, & i'm even considering that deal, i'm REALLY WORRIED the retail market will go ga-ga over Facebook, and set an unrealistically high # after they go public. I'm talking like $25B+ unrealistically high... think about it. Aside from the go-go late 90's, when has the public jumped back into Internet stocks? You got it... GOOG again. And they piled in. And it went up. And they piled in some more. And it went up. And they're still on board at $500/share.
So if that's the most recent example, what's to stop the public market from kicking Facebook's market cap up to some nosebleed numbers post-IPO? Absolutely nothing.
Now Mr. Schmidt & Mr. Ballmer: how much is Facebook really worth to you? $5B? $10B? more? And how long are you willing to wait? Until after the IPO? The price is just gonna keep going up. I'm glad i'm not either of you guys, because just like Terry you'll be criticized either way. But that's why they pay you the big bucks, right? Big Decisions require Big Checkbooks... not to mention Big Balls of Steel (clips).
Just remember in these situations: better to pull a Whitman than a Semel.