The bull case for Facebook

Forget $10bn – Lee Lorenzen thinks Facebook will be worth $100bn.  Whilst I wouldn’t go that far his arguments are not entirely crackers – although they do have one flaw that I will come to at the end of this post.

Lee Lorenzen has set up a venture fund, Altura Ventures, where the “whole portfolio will be made up of companies that have a shot of leveraging the dominance of Facebook”.

His main point is that Facebook can be as big as Microsoft.

The comparison should be with Microsoft [not Google] in terms of the lock-in that can be achieved when you control both the operating system and most of the killer apps on the platform.  ….
With Facebook, their lock-in will come from consumers who can’t easily decouple themselves from Facebook without giving up their network of friends and with application developers who will have to write for Facebook to reach a critical mass of connected consumers who trust their friends invitations/newsfeeds more than any 3rd party advertsing pitch  ……
Facebook’s entire business is based on bringing larger number of REAL PEOPLE closer to one another than has ever been possible before and keeping them informed about and engaged in one another’s business and lives.

But, as Lee concedes, Facebook’s ability to monetise it’s customer base is unproven.  They are reportedly making profits of $30m on revenues of $150m at the moment, whilst Microsoft is making profits of $14bn on revenues of $50bn.

I am with Lee in believing that Facebook has legs as a business, and the points he makes are good in that regard, but when you look at the Microsoft results alongside Facebook’s it becomes crystal clear just how much they need a killer revenue model.

This mooted deal between Microsoft and Facebook and the $10bn valuation associated with it has me wondering if they have a magic solution to this problem in the pipeline somewhere, but for now it really isn’t clear what that might be.  As I have been reading about CPMs and behavioural targeting over the last couple of days I have started thinking that Facebook will need something more than this if it is to live up to expectations.

Don’t get me wrong, Facebook will still be a great business, in fact it already is.  All I am talking about here is whether it goes on to be a genuine internet giant.