Thursday, April 20, 2006
Gets another round, total in = $40m, the Herring says the current valuation is near $500mish.
That's all well and good, supported (allowing for a bit of 2.0 inflation) by market and transaction comps.
My question is: how does Facebook exit? I think Viacom has passed, and so who does that leave (barring the incredible - a public Facebook)?
The window for a Facebook exit is 2006. In a few months, I'm not sure whether valuations in this space will be able to maintain discipline, given the explosion in new - and this time serious - entrants, like Cyworld, etc.
Now, by all means, have at it in the comments - but please don't throw traffic numbers at me to prove how r0xx0r Facebook is. Let's try and talk a bit more strategically.
Did we get your thoughts on Cyworld US yet? I took it for a spin during the (accidental) public beta and I thought it was pretty sweet. Still can't grok how it fits in, though - Habbo Hotel again? The closed nature of the internal economy (gift giving, buying items for your hompy) is smart, but is it evil?
Perhaps an extrapolation of the social networking sphere/industry would be useful to try and ascertain what the socnet landscape will look like in the future. I am starting to think the future will not be about one big uber-network, but many small to medium sized networks that are highly targeted and designed for a specific context and user experience (focusing on whatever modes of media production best fit their demographic). These sites would be most effective because they choose not to keep adding "features" (ala Facebook Highschool) that dilute the user experience in order to feed the gaping maw of growth. What a network like Facebook should have done is start an entirely different site for highschools, one with a totally unique user experience for high school students. Some sort of integration could be established between their college site and their highschool site, but they would recognize the different contexts and keep them enough distance apart.
This said, however, I believe uber-sites do have their place in the future because being part of a network that size can be a unique user experience in and of itself. But the "uber-networks" as we know today will have a smaller share of the overall pie.
In conclusion, I would say that billion dollar valuations of individual social networking sites are too high, and we will find out in the future the equilibrium lies with a more distributed socnet landscape.
Upon rereading my post above, my argument is looking more like an edge vs. core kinda thing. Interesting.
Pete, how exactly is a closed economy smart?
I think Cyworld is going to bomb in the US - one of the main factors driving its success in Korea was mobile - that wont happen in the US due to the walled gardens around the operator portals
Plus - have you checked out the US front-end? ... its like the got Google translator to parse the Korean into English
Neopets is massive. Those people need an upgrade and Cyworld could be it... but who knows?
I like your comment about small to medium sized networks focused on specific areas. I'm part of asmallworld.net and the administrators have done the best thing possible - capped the amount of members and are now not letting in any new members.
Ubernetworks like Myspace just get too big. And frankly there are so many people in my life, why do I want to keep getting disturbed by people I don't know and are so tenuously related to me.
yes there is the thrill of this - but it grows old fast (or maybe I'm just different from the others).
Well, it was "smart" for that market (read:captive audience) - might not play so well elsewhere. On second thought, maybe "smart" is the wrong word.
I partly agree with your interpretation of Zack's comments about specialized networks, but I'm not sure that necessarily translates to "small" networks - I find much greater utility in having many weak ties than a handful of strong ones (see Wisdom of Crowds, the Wealth of Networks etc). I think ideally these socnets will be decentralized - look at how closely your blog readership (and the bloggers you link to) reflects your interests.
I saw Malcolm Gladwell speak this week at the WebmasterWorld conference in Boston, and asked him about his take on the emergence of online social networks in the context of his theory that social power can trump political and economic power.
His take was that online social networks will struggle past a certain size as they will begin to lose their utility for their members.
While this doesn't take into account those networks that are able to fragment into many smaller, interconnected networks, it was interesting to see one smart guy who thought that there is a natural point in a social network's growth that they jump the shark, to to speak.
If that's the case, I wonder when MySpace is going to hit that point... 66M and going strong.
back to the valuation discussion. Two things that distrub me:
1. Clearly no public precedence here and so no ability to comp the value. This leaves precedent M & A and really this leaves the myspace transaction. Clearly you cant DCF the valuation.
2. Has anyone really looked at the churn aspects of this? Edge computing and user driven content are the epitomy of decentralization. This has to remove the traditional barriers to churning customers. IMO the speed at which we have witnessed user ramping is equalled by the speed at which we can also churn. This downside exposure is not factored in. the valuation is based upon a set of methodologies or hypotheses more applicable to web 1.0 models.