Why Facebook has a $1billion dollar valuation

March 12, 2008

I know it is scary to think about this but I believe that the potential for an application like Facebook is larger than advertising.  Think of it this way:

1.) 34+ million users (in best Dr. Evil impression) – yeah the statistics will tell you that the site growth is capping off and that only a percentage of those users actually log in – but they still “touch” a ton of people.

2.) Communication is changing on the web (talked about this before).  Thing about it is, no one really knows where it is all going.  Clearly E-Mail is not going to be the main channel for all communications 10 years from now.

3.) People are getting tired of all the applications out there – there has to be a shakedown.  Companies that are in endless beta will eventually give up.  Since all they want is Facebook fame not truly affecting the flow of information.

4.) Facebook has something that no one else has – the API.  Call it silly – call it dumb – say it will never support business to business – but don’t deny the fact that there is something tangible here.  Slide – the company behind a few of the most popular Facebook applications (which coincidently did not exist before Facebook) just secured 50 million dollars in funding (yes – in my best Dr. Evil impression).  Even with a horrible burn rate of 5 million dollars a year, you are still looking at 10 years of comfortable opportunity.

5.) The web is changing and so is communication.  Teens and college age users are done with E-mail.  They use IM, Twitter, SMS etc… to keep up with everyone and they are huge on ‘networking’.  Go find a teenager that doesn’t have 100+ contacts in their list.  In the past those types of contact lists were reserved for Stock Brokers and Insurance Salesman.  There is a real network growing here and kids are learning how to connect quicker then ever.

So where does that leave us:

Doing nearly everything on Facebook.  Think of this as your “portal” to the rest of the world and anyone that you give two hoots about.  I am not a kool-aid drinker here but there are some astounding opportunities for this site which not a lot of people are aware of.

Take some common tasks:

– Buying music – with iLike I can not only keep tabs on all my favorite artists, with my network of people I can see what else is out there.  If trust you to be in my network, I probably trust you to recommend some music.  With everything from concert updates to record releases (and links to shopping) you can do it all – without having to leave Facebook.

– Renting movies – my Blockbuster online account is now integrated with Facebook.  I can actually add movies to my queue from Facebook without ever leaving the site.  On top of that, I get recommendations from my friends…

Ok, let’s stop there!

Take Blockbuster for example.  Let’s look at what they have done.  Instead of building their own social networking architecture (Friends, Comments, Ratings, Recommendations etc…) they just tie into Facebooks framework.  Cut development time in half.  Cut maintenance time in half, and to top it all off, they don’t have to go and find a marketing channel.  When I logged into Blockbuster they popped up a window “Hey, do you have an account with Facebook – we integrate …”.  On top of that – they can send broad messages to Facebook informing people that the service is there.  Why would Blockbuster want to compete??  Search for Netflix – they have done the same thing.  Why not?

I could go on with all of the general actions you take on a daily basis which require recommendation – buying a car, getting a loan, renting a house etc… Why not connect with other people.  Thinking about moving, look in your friends networks, anyone live in an area that you are interested in – connect with them.  Find out what the housing market is like, the places to look and the places to stay away from.  Six degrees of separation times 10 (or like 100).

Want proof: “Facebook Taps Blood Donor

That same story has certainly come out of Forums and other web based communication channels but that was in the past.  This is the now.  You might be asking me to tip my cup back down and stop or I will get a head rush.  You may be right.  But I don’t think you can deny the potential.

Is it really that bad that you would log into Facebook every day – at least once?  I haven’t even mentioned things like dating, sharing photos, having fun…

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