Some more magic to come out of Facebook?

By October 1, 2007 October 24th, 2008 12 Comments

Lots of people are reporting that Facebook is turning over $150m and making $30m in profits. These are small numbers when compared with the rumoured $10bn valuation that Microsoft is considering for a $500m investment. As the Guardian points out that equates to $238 for each of their 42m profiles – which compares with revenue and profit per profile of $3.6 and 71 cents.

This kind of discrepancy between revenue and valuation suggests to me that they must have a plan that will drive some kind of step change in financial performance.

According to Wired that plan is to start targeting ads more effectively using the profile data in the site. That would be good to see, but it would have to be incredibly powerful to bridge this valuation gap. More powerful than any ad targeting I have seen before, and by quite some margin.

I think they might have something else up their sleeve.

The $10bn valuation probably started life as little more than a convenient round number made up by someone at Microsoft for what is for them a relatively small investment at $500m. But I would be surprised if there isn’t some kind of justification somewhere and I doubt that it is based simply on better targeted ads.

There has to be something more Facebook can do with all the passion and data which resides in their user base and profiles.

On a related note the Wired article also quotes Scott Rafer as saying he doesn’t expect Lookery to make any money out of Facebook after all! (I wrote last week that Lookery had the better prospects than the other two vendors I looked at who were building services to monetise Facebook apps.) Instead Rafer is using Facebook to experiment before turning to smaller social networks to help them target their ads better. You can see how Facebook is a good place to experiment given that the API gives you instant access to profile data without the need to go through a lengthy biz dev process, but at the same time they are not a great customer as they are large enough to want to build their own ad targeting system.

UPDATE – Scott Rafer has clarified that Lookery does plan to make money out of their Facebook ad network – they have started with a zero revenue share but plan to start taking a cut in due course.