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as reported on news.com 

“I’ll go on a hunger strike!”

So said one adamant Facebook user in the wake of the news that game manufacturers Hasbro and Mattel were trying to do something about the wildly popular, unquestionably addictive online game known as Scrabulous.

The game, which rose to fame when its creators turned it into an embeddable Facebook application, is a word game that’s a whole lot like the classic board game Scrabble. It uses a playing board with “bonus” spots just like Scrabble. In fact, the rules are identical to Scrabble‘s.

The companies in charge of the “real” Scrabble, for obvious reasons, aren’t happy.

Game companies Hasbro, which distributes Scrabble in North America, and Mattel, which is responsible for its overseas trademarks, have reportedly asked Facebook to remove the game from its application directory. And you can tell it’s a serious legal matter because nobody’s talking.

Facebook declined to confirm the report, and it said that it has not yet issued any kind of statement about Scrabulous; representatives from Hasbro did not respond to calls for comment.

The similarities between Scrabble and Scrabulous are crystal-clear, and it’s a no-brainer to see why Hasbro and Mattel are miffed. To add to that, Scrabulous serves up advertisements, which means that its creators are making money off the concept. But what the game companies really ought to do is take a step back and realize that they can use Scrabulous to their advantage–without removing the viral game from Facebook.

Fans of Scrabulous, for one, aren’t happy about the takedown news. On Facebook, an unofficial group called “Save Scrabulous” is growing fast, with more than 7,000 users at last count (and 5,000 hours before.) Its members, including the aforementioned “hunger striker,” are livid.

“Leave Scrabulous alone!” one of them posted in the group’s message board, a thinly veiled allusion to the “Leave Britney Alone” viral video.

Others were more visceral: “I’ve burnt my Scrabble board in protest!” one exclaimed.

A game of Scrabulous on Facebook.

(Credit: Scrabulous)

Scrabulous is the creation of two brothers in India, Jayant and Rajat Agarwalla, who founded Scrabulous.com in 2006. When Facebook launched its developer platform in May, the Agarwallas soon transformed their Scrabble spin-off into an application designed for the social network, and it caught on like wildfire. More than 2 million Facebook members are active Scrabulous users, and several hundred thousand of them play the game each day.

It was a catch-22 for the Agarwallas. The “Scrabulous guys” became Facebook celebrities, but the exposure meant that they were much more visible–and so were the obvious similarities between Scrabble and Scrabulous.

“It wouldn’t be an issue if Scrabulous weren’t so popular, right?” observed Darren Herman, director of digital media for marketing firm The Media Kitchen. It’s the sheer mass of Facebook Scrabulous users that have made it a high-profile case as well as an inevitably ugly situation, if the game is indeed taken down. “We’re seeing the power of social media in its early days. Since we’re still trying to figure out the rules of the game, no pun intended, these types of issues are bound to arise.”

In other words, according to Herman, the debate over Scrabulous is indicative of the fact that the world–or at least certain mainstays of the game industry–still hasn’t quite figured out that a traditional course of action just doesn’t always work on the Web.

“I don’t think they are crazy to think this way,” Darren Herman said when asked if Hasbro and Mattel are totally off base. “Scrabble came out in a time when everyone guarded their (intellectual property) tightly.”

In the old order, a takedown notice may have been the only route. But this is the Web, and plenty of people have pointed out that Hasbro and Mattel are sitting on a marketing gold mine with Scrabulous. They have a gleefully addicted fan base, a machine for viral buzz (Facebook’s platform), and the deep pockets to offer to buy Scrabulous outright–or at least strike an innovative advertising deal.

There’s also no direct competitor. Neither Hasbro nor Mattel operates a Web-based, ad-supported version of Scrabble; video game manufacturer Electronic Arts owns the rights to electronic versions of the game, and it currently sells a PC game of Scrabble for about $20. (EA was not available for comment on the Scrabulous issue.) With Scrabulous, all three companies may be sitting on a marketing treasure trove.

Hasbro and Mattel might not get it. But the members of Save Scrabulous think that they do.

“Do these greedy fools not realize that they should be paying the creators of Scrabulous for all the damn fans of the game they created?” one angry Scrabulous fan from the United Kingdom asked on the group’s “wall.” He brought up a further point–that this is getting people excited about the musty old board game in a way they haven’t in years. “It’s like the music vids put on YouTube. It makes me buy tracks I never would have done, and frankly, before this game emerged, Scrabble was just something for rainy days in my childhood.”

Another member of the group put it more concisely. “Scrabulous brought Scrabble back in style. They should be thankful.”

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Here’s a great post from Lee (Altura ventures, adonomics.com) who runs the Altura fund, the facebook (F8) applications focussed fund. Altura took over appaholic.com(App’s) a facebook analytics website and renamed it to adonomics.com (Ad’s + Apps)

Introduction

  1. The Altura Ventures’ Genesis Story — I was not present on May 24th at the launch of the F8 Platform and I only knew a little about Facebook from my sons (one of whom graduated from college two years ago and the other who is a Junior this year). I did not have a Facebook account and had only checked out MySpace briefly after its acquisition by Rupert Murdoch. I was not impressed and tried to delete my account the same day I created it (without much success since they make this virtually impossible). In any case, after leaving SHOP.COM where I worked for 9 years to grow the site from 0 to 500,000 users and while working on a new software startup, I read the iLike story of how they launched their facebook app and added 600,000 in 8 hours!!! Clearly, there was something new under the sun in software. After studying Facebook from mid June on, I decided to reposition Altura Ventures as the first facebook-only VC.From that point on, I began to use Facebook itself as a way of building my own personal brand as a thought leader in the Facebook space. I created the “Official Altura Ventures and AppFactory Facebook Investment Fund” group and made officers in the group of about 100 of the top 300 Facebook App developers, key Facebook employees and key Microsoft employees. My strategy was based on the fact that since I couldn’t own any of Facebook’s Social Operating System, the next best thing would be to own a portion of Facebook’s Application Space. I also acquired Adonomics.com and began to use it as a site to convince developers that their Facebook apps were going to be worth a lot in the future and to not sell them too soon for too little money (e.g., like Favorite Peeps did when they sold an app with 1.5 million users to Slide for only $60,000).I also began to write about the comparison between Facebook’s Social Operating System and Microsoft’s Graphical Operating System. This comparison along with Facebook’s exponential growth in users and applications led me to conclude that they were worth $100 billion and I started to blog about this and attend Facebook conferences where I would explain why I thought this way.
  2. $100 Billion!!! Are You Drunk? — At Dave McClure’s Graphing Social Patterns conference, I mentioned my belief about Facebook being worth $100 billion and this led to a series of reactions from the panel that followed mine in which I was accused of being drunk, an idiot and/or crazy enough to be escorted out of the building. While not true, these accusations were made by the likes of Jason Calcanis, Robert Scoble and Michael Arrington and indicated that calculating a valuation for a privately held company that is growing as fast as Facebook is something that is not well understood. It is my goal in this talk to explain how I arrive at the $100 billion figure, convince you that this number is right, show that Facebook has multiple paths to arriving at this number and failing all of that, demonstrate that I not drunk, on crack or crazy.
  3. WATER FIGHT! and Birthday Calendar and Stanford Facebook Class — Before beginning, I should also mention that Facebook continues to be the fastest and cheapest way for any company to create an app that can gain 1 to 2 million users in an extremely short period of time. Altura Ventures demonstrated this with two apps WATER FIGHT! and Birthday Calendar that reached 1 million users in only 60 and 15 days, respectively. In addition, 5 of 25 apps from BJ Fogg and Dave McClure’s Stanford Facebook Class reached 1 million users in less than 30 days. This unbelievable growth was accomplished AFTER Facebook had eliminated the Ultra-Viral, Unlimited Invite System that was in place at the time of iLike.


Overview

  1. Why Facebook Can’t Be Worth $100 Billion
  2. Facebook’s Growth and Current Business
  3. Graphical Operating System vs. Social Operating System
  4. Value of a Registered Web User vs. a Facebook App User
  5. Warren Buffett’s Views On Valuation
  6. How Should We Determine Facebook’s Worth?
  7. Valuation Time Machine
  8. Getting To $100 Billion in 3 Easy Steps
  9. $2.4 Billion Per Year from $1 Per User Per Month from 200 million Users
  10. $2.4 Billion Per Year from 10+ Partners Paying $20 Million Per Month
  11. $2.4 Billion Per Year from 100+ Major Merchandise Categories Paying $2 million Per Month
  12. Conclusion
  13. Commercial


1. Why Facebook Can’t Be Worth $100 billion?

In addition to explaining at http://blog.adonomics.com why Facebook is worth $100 billion, let me also mention the reasons from A to Z why I’ve been told Facebook can’t possibly be worth $100 billion and briefly refute each of them.

a. It only has $100 million in 2007 Revenues — Google only had $86 million in 2001 revenues before co-opting Overture’s Bid-Based, Cost Per Click advertising system as the perfect monetization vehicle for a search engine site whose goal is to get you to leave the site. Now, Google has a market valuation of $218 billion. The same thing will happen for Facebook when it co-opts a Cost Per Customer Acquired transaction system as its perfect monetization vehicle which is for a site whose goal is to get you to stay on the site.

b. It only has $30 million in 2007 profits — Google only had $6 million in 2001 earnings before learning how to monetize search. Google has 2007 earnings of $4+ billion. Facebook’s cost structure is already paid for with its current, ill-fitting, link-off advertising model and so all almost all future revenue will drop straight to the bottom line.

c. It is yet another flash-in-the-pan social network that will fade like Friendster and Orkut — Yahoo thought the same thing about Google (i.e., search is a commodity feature and not a business and will be replaced by something else). They were wrong and Google has surpassed Yahoo’s value because it became difficult to buy or build a faster, better, easier or cheaper than Google and the Google brand “stuck” in consumer’s minds. Facebook will be the social operating system brand that sticks in consumers’ minds and it will be very difficult to build a faster, better, easier or cheaper social networking experience than Facebook.

d. MySpace is still bigger — yes but about half of their users are either identity/advertising bots or fantasy identities. However, these millions of fake, exhibitionistic avatars are not, in the long run, that interesting to maintain nor fun to interact with when compared to Facebook’s users who are real people with real friends with their real names, faces, birthdates, likes and dislikes showing.

e. Google will crush it — Google’s brand power has only extended into GMail (which is still far behind Yahoo Mail and Microsoft HotMail) and they have failed miserably in video (so they bought YouTube), in VOIP (so they bid for Skype but lost out to eBay), and in hundreds of other Google Lab apps that haven’t broken out to mass market audiences.

f. Open Social will crush it — herding 18 to 50 cats to build a social operating system will inevitably lead to a lowest common denominator set of features, a committee-designed UI and variably extended API that will not be compelling for end users. Imagine if the MP3 player industry tried to standardize on their own version of iTunes and an iPod — it would never be as clean as Apple’s. In addition, the advent of Facebook licensing their Social Networking API to Bebo and others means that every wanna-be social network can now get the secret formula to “the Real Thing” vs. Google’s imitation brand.

g. Users will hate it when they understand the privacy issues — in reality, Facebook users understand that what they put on Facebook can be seen by their 300 to 500 friends and this doesn’t particularly bother them. This “transparent lifestyle” works because it brings benefits to those who practice it that outweigh any real or perceived negatives. In addition, for those who want more privacy than Facebook’s defaults, all of the necessary privacy settings are there to achieve any level of control as to who sees what about you and your profile. Those who don’t trust these controls can simply not join. However, this represents a tiny minority of the people in the countries where Facebook has been launched.

h. E-mail / Search / Groups / etc. Suck on Facebook — although the Facebook apps mentioned have limits in comparison to their Web 1.0 counterparts, in most cases they also have HUGE benefits. For example, e-mail is limited by the lack of Forwarding, Sorting, Searching and CC’ing, however it benefits from being completely free of SPAM due to Facebook’s role as sherrif enforcing Terms of Service that punish those who would abuse their right to e-mail others. This is an also an example of how having simple, single function apps where every feature is used almost every day is better than having complex, kitchen sink apps that need to find an antidote for their feature bloat.

i. Facebook Apps are Toys for Toddlers — although some people of a certain age and relationship status (e.g., a certain all things digital columnist) don’t need or understand many of the flirtation and courtship apps that are popular on Facebook, they do serve a purpose for millions of Facebook users. In addition, apps like Birthday Calendar and Top Friends have real utility in managing your personal and business relationships with a level of connectedness that was typically reserved for very ambitious sales people and CEO’s who took it upon themselves to learn their customers and competitors’ spouses’ names, childrens’ names, pets’ names and birthdays.

j. People won’t click on ads — the low click-thru on Facebook CPC ads that take the user off of the site is really a testament to the stickiness of Facebook itself. If and when Facebook offers web search (in addition to people, event, group and app search), then click-thru rates will probably approach Google’s for that aspect of the site. In additon, when clicks stay within the site or are made to look like the Facebook newsfeed feature, they enjoy higher click-thru rates than Google’s sponsored links.

k. It’s all college students who won’t buy anything — in every country but the US the demographics of the users matches those of the online population. It is only in the US, where thanks to its 80% to 90% penetration of colleges that the demographics of the users skews to the 18 to 24 year old group. Even this is changing quickly and will continue to grow as the parents, aunts and uncles of high school and college age students begin to understand how useful Facebook is.

l. Business users will stay on LinkedIn — the instant that Facebook finishes their feature for grouping friends by their various types (e.g., school, social, church, business, family, etc.), sites such as LinkedIn will begin to see a mass exodus to Facebook. This may even be accelerated by LinkedIn’s support of OpenSocial which will allow “Exodus Apps” to be written that copy out a user’s profile and connections and migrates them over to Facebook. The reason for this is that Facebook is a site that is visited daily for news and updates whereas LinkedIn is only checked periodically when seeking a new job or business connection.

m. Older people won’t go on Facebook — those older people who loved AOL (and may still be on it) because it is a way of using the web that is shielded from some of its more offensive areas will also love Facebook when they are exposed to it. In addition, older people have children and grandchildren on Facebook that they wish to connect to and Facebook makes this easier than any other system available to them.

n. It hasn’t been localized — this is being fixed but even with its english-only user interface some of the fastest growing countries are places like Turkey and Egypt. This shows the power of Facebook is not the technology or interface but the people that are on the site and once a country tips toward a social network like Facebook, it will be almost as hard to get them to switch as getting the country to change their native language.

o. It has embarrassing photos from my college days — these are easily removed and will soon be easily segregated into areas that will be hard for business collegues and prospective bosses to find. In addition, many in the coming generation are more willing to have who they are be seen by not only their peers but also those who are older (e.g., witness the prevalence of tatoos and piercings in such business settings as high end restaurants, expensive stores and even banks).

p. The Social Graph is a silly term — every revolution needs its buzz word and this one does a fairly good job of describing the fact every person on the planet is connected to one another by a social fabric of friendships and relationships that can be mapped (or graphed) as a series of nodes and lines. Facebook’s goal is to have the most accurate online picture of this social graph and to leverage it by watching the actions of its users and alerting these users’ friends of what they are doing.

q. The management team is full of amateurs — although young, Facebook’s key managers have been parts of major companies before such as AOL, Amazon, etc. and their board includes the founder of PayPal (i.e., Peter Theil who beat an incumbent giant as they tried to launch a competitive payment system, executed an IPO for an initial liquidity event and then grew so threatening they forced eBay to purchase them at a post IPO premium). To date, the Facebook team has grown the company from 3 users to 60 million and from a $10 million valuation to $15+ billion valuation. All in all, not bad for a “bunch of amateurs.” Matt Cohler, Dustin Moskovitz, Adam D’Angelo, Chamath Palihapitiya,Owen Van Atta, Gideon Yu, Dave Morin, Ami Vora, Dave Fetterman have the right stuff and it shows as their their rocket ship has not only achieved escape velocity but is also more than half way to infinity and beyond.

r. Mark Zuckerberg is too young/arrogant/stupid/nervous on stage/insensitive — the same thing was said in just about every first press article about Bill Gates — the other Harvard drop-out that started an OS company with his former roommate. Mark has actually retained a level of humility that is admirable for someone so young with so much early success. I credit this to his parents and to him having his sister in the company to remind him and others about exactly how he was as an awkward youngster.

s. Facebook doesn’t care about their users — it is clear that Facebook is willing to push the envelope WRT features such as the newsfeed and beacon that its users either don’t initially understand or fully appreciate. However, Facebook is also fanatical about creating a safe platform where people are who they say they are (unlike MySpace) and which is family-friendly and where SPAM and phishing scams and data scraping efforts are essentially impossible.

t. The web should be open — As Dave McClure says, “open is not better, better is better.” The advantage of a walled garden with a strictly enforced Terms of Service is that those who would abuse the trust built into the system can be kicked out. This makes it better for those who choose to participate in an environment that works well for them. Most of those crying for Facebook to open up their bag of crown jewels are competitors who would never think of doing the same thing with their most highly prized assets.

u. Facebook is just AOL warmed-over — AOL was well-liked (even loved) by many users for what it offered with 10’s of millions paying a monthly fee just for the right to use it (even after the web became free) and unlike AOL which tried to keep their users from discovering the real web, Facebook’s users know all about the real web and are choosing to spend more and more time inside of Facebook because this is where their friends are. Just like that bar in Boston, Facebook is the place “where everybody knows your name and they’re always glad you came.”

v. Everyone in Brazil uses Orkut and everyone in the Phillipines uses Friendster — this just shows the stickiness of even a less than fully capable social network when an entire country standardizes on it. This loyalty and tipping-point style of dominance is what Facebook is enjoying in almost all of the countries where there are large economies. As I’ve said, getting a country to change its dominant social network is like convincing it to change its native language — it just won’t happen because everyone has to change on the same day to make it work.

w. Google / Yahoo can simply turn their e-mail systems into social networks — no they can’t because they don’t have their users’ permission to do so. In Facebook, if I add a friend I know that my whole network of friends will see this. However, if I add a GMail address, this can’t be shared with the rest of my address book and it is not even clear how one member in my address book, known only via an e-mail, would be recognized by someone else (e.g., “DM2007@aol.com just became friends with NiceGirl05@gmail.com” is much less useful than “Danna Lorenzen just married Kevin Holmes”).

x. Google owns web search forever — while the term Google currently equals Search in most users’ minds, the Facebook Search box is a wedge in this tight coupling the desire to search for something and going to the Google.com home page. The thin end of Facebook’s search wedge comes from the People/Event/Group Searches that are now performed more efficiently at Facebook. When users fully adopt Facebook as their gateway to the web, and Facebook offers web search (powered by Microsoft), then many users will opt for the most convenient Search box which will be inside of Facebook.

y. Microsoft’s investment doesn’t matter — given all of the software wars that Microsoft has won (e.g., Character OS, Graphical OS, Development Environment, Word Processing, SpreadSheet, Presentation, Database, Browser, Server, etc.), it is a mistake to dismiss them when they pick an ally in the Social Operating Systems war. Steve Ballmer likes to win and he has a 30 year track record as a winner — don’t underestimate the 3D chess match he and Bill are playing to beat Google using Facebook.

z. It can’t be worth $100 billion because it is actually worth more than $100 billion

2. Facebook’s Growth and Current Business

2004 Feb – 3 users – Mark, Dustin and Chris
2004 Dec – 1 million users (college only members via .edu e-mail verification)

2005 Dec – 5.5 million users (adds high school members)

2006 Dec – 12 million users (opens up to any member)

2007 Apr – 20 million users

2007 May 24 – Platform Launched

2007 Dec – 60 million users

450 employees è -$45 million (headcount)
50 million users
è
-$25 million (infrastructure)
Page Views
è
2.1 billion page views per day
Microsoft Ad Deal
è
$100 million (approx. $0.13 CPM rate)
Profit
è $30 million

2008

900 employees è -$90 million (headcount)
200 million users
è
-$100 million (infrastructure)
Page Views
è
8.4 billion page views per day
Microsoft Ad Deal
è
$400 million (approx. $0.13 CPM rate)
Profit
è $210 million


3. Graphical OS vs. Social OS

 

Graphical Operating System

Social Operating System

OS Name

Windows

Facebook

Founder(s)

Harvard drop-out and his former roommate

Harvard drop-out and his former roommate

Initial Launch

1984

2004

Critical Mass Achieved

1995

2007

Competitors

Digital Research’s GEM, IBM’s OS/2 Presentation Manager, VisiCorp’s VisiON, Sun xWindows, Apple’s Mac

MySpace, LinkedIn, Orkut, Friendster, OpenSocial

Focus

Windows SDK à Developers / Developers / Developers!!!

80,000 employees

4+ million 3rd party developers

F8 Platform à Developers / Developers / Developers!!!

450 employees

180,000 3rd party developers

Lock-in

OEM PC companies bundled Windows; Developers’ apps and API knowledge; Consumer investment in apps, file system and user interface

Consumer investment in Profile Data, Notes, Photos, e-Mail history, Groups, Apps, and Friend Network; developers’ apps and API knowledge

Killer Apps

Word, Excel, Powerpoint, Access, Outlook, Browser

Photos, Events, Friends, Newsfeed, Inbox, Groups, Profile Page

Calendar, Dining, Travel, Gifting, Shopping, Turn-based Games, Super Groups


4. The Value of a Web User vs. a Facebook App User

 

Web site Registration

Facebook App Install

User Actions Required to Accomplish Registration

Select Registration Button, Enter E-mail, Enter & Re-Enter Password, Enter other app related profile data

Select Add Application, Select Continue

Source of New Users

Cost Per Click Advertising (typically $0.25 to $1.00 to get a visitor), Cost Per Impression Advertising, Search Engine Optimization, PR, Offline Advertising, Blogs,

Friend Invites, Friend Newsfeeds

Cost of Registered Users

Assuming 2% conversion rate, $12.50 to $50.00

$0.00 via viral flow, $0.50 for Cost Per Install

Site Reminders

Bookmarking (<1%)

Profile page

Post Registration Marketing Methods

e-mail

e-mail, newsfeed, profile page, friends’ interactions

Opt-Out Rate

50% to 75%

< 1%

Hurdles to Re-using Site/App

Remember e-mail/password

Find app/icon on Profile Page and Click

a. Facebook is “Addictive”

b. Facebook is “So, Distracting, Companies Must Ban It”

c. Facebook is “God’s Gift to Developers”

d. Facebook is “Nirvana for Direct Marketers”

e. Facebook is the first “Word of Mouse” Engine

f. Facebook is “Bloomberg Terminal for Your Life”

g. Facebook is the ”Lowest Cost Customer Acquisition Vehicle on the Planet”


5. Warren Buffett’s Views on Valuation

Warren Buffett’s Definition of Value

The value of any business today is determined by the cash inflows and outflows – discounted at an appropriate interest rate – that can be expected to occur during the remaining life of the asset.”

Owner’s Earnings is the amount all future cash that the investor could take out of the business without hurting the business’s long term competitive position.

Stock Market’s Definition of Value:

Valuation is any amount that a willing seller and buyer agree to

For public stocks, Mr. Market values every business each and every day

And, Warren’s fortune is based on buying stocks whose future earnings
are being undervalued by the marketplace

Valuation is not based on past or current earnings but on future earnings


6. How Should We Determine Facebook’s Worth?

Facebook’s Investment History

June 2004 à 5% sold, implied valuation à$10 million
May 2005
à 12.5% sold, implied valuation à
$100 million
Apr 2006
à 5% sold, implied valuation à
$500 million
Oct 2007
à 1.6% sold, implied valuation à $15 billion

Facebook’s Valuation Should NOT BE BASED ON:

Yesterday’s Small % Investors

Yesterday’s Earnings

Today’s Monetization Methods

Today’s Strategic Partners

My Estimate of Facebook’s Valuation Is BASED ON:

Today’s Growth Rate

Today’s Developer Platform

Today’s User Experience

Tomorrow’s Monetization Methods

Tomorrow’s Strategic Partners

Sum Total of All Future Earnings

So, what is Facebook worth today?

Lee’s Answer à $100 billion


  1. The Valuation Time Machine

What was Alaska worth in 1867?

1867 – Seward’s Folly:
586,000 square miles for $7.2 million (1.9 cents per acre)
$182 million in today’s dollars

1867 – 1958 à $40 billion in Fur, Gold, Copper, Salmon
1959 – 2006
à $375 billion in Oil, especially after the pipeline

2007 – Today’s valuation = ???

What was Microsoft worth in 1984?

1986 – Post IPO valuation à $750 million

1986 – 2006 à $126 billion in Net Income from OS Licenses, Office Suite Apps

2007 – Today’s Stock Market Valuation = $310 billion

What was Google worth in Dec. 2001?

2001 – AdWords CPM = 2001è $86 million revenue

2002 – AdWords CPM & CPC = 2002 à $347 million revenue

2003 – AdWords CPC only + AdSense = 2003 à $961 million revenue

2004 – Post IPO valuation à $31 billion

2001 – 2006 à $20 billion in Net Income from CPC Search

2007 – Today’s Stock Market Valuation = $218 billion

What was Facebook worth in May 2004?

2004 – $10 million???

Growth of non-college, non-US members
Signing Microsoft advertising deal
Opening of the platform for developers
Accepting Microsoft investment

2007 – Today’s Private Investor Valuation = $15 billion


8. Getting to $100 Billion in 3 Easy Steps

a. What will Facebook’s P/E Ratio Be?

14 – Disney ($62 billion)

17 – GE ($371 billion)

17 – American Express ($67 billion)

22 – Microsoft ($319 billion)

33 – MasterCard ($26 billion)

50 – Yahoo ($34 billion)

54 – Google ($218 billion)

103 – Amazon ($38 billion)

280 – eBay ($45 billion)

b. Earnings Required to Get to $100 Billion Post-IPO Valuation

25 P/E è $4 billion in earnings
42 P/E
è
$2.4 billion in earnings
50 P/E
è $2 billion in earnings

c. Users Required to Get to $100 billion Post-IPO Valuation

2007 à 65 million
2008
à
200 million
2009
à
300 million
2010
à 400 million

d. $100 Billion Post-IPO Valuation è $1 per month per user

P/E ratio = 42
Late 2008 earnings run rate = $2.4 billion
$100 Billion = 42 P/E * $2.4 billion

200 million users$2.4 billion = $200 million per month * 12 months
$200 million per month = $1 per month * 200 million users


9. $2.4 Billion Per Year from $1 Per User Per Month

Add Web Search to Facebook:

28 web searches per user per month

1 in 7 lead to Cost Per Click Sponsored Link click

4 clicks = $1.20 per month per user

(Facebook’s rate: $0.04 per web search)
(Google’s rate: $0.26 per web search)

Create Web-Wide, Open AdSense that is Enhanced with User Data:

Google makes $4.7 billion per year in AdSense Revenue

Facebook could make it 50% better its User Knowledge

Works out to $2.4 billion per year in Facebook’s Share of AdSense Revenue

Offer a Facebook Mall with 35% New Customer Acquisition Fee (otherwise 5% fee)

Average Transaction Size = $30

35% New User Merchant Commission = $10.50

5% Existing User Merchant Commission = $1.50

Purchases Per Year Per User = 2

50% of Purchases are with New Merchants

Commission Fees = $12 on Total of $60 Per User

$12 billion in Mall Sales per year

Works out to $2.4 billion in Customer Acquisition and Commission Fees

Offer a Facebook Wallet (i.e, Web-Wide Auto-Login / One-Click Buy Service)

Prior Wallet’s have failed due to lack of Adoption

Facebook already has massive adoption and complete user data

Facebook already has 6 million credit cards on file

At 1%, this is $2.4 billion for assisting $240 billion in annual purchases


10. $2.4 Billion Per Year from 10+ Partners Paying $20 Million Per Month

License eBay to Power Person to Person Sales

License Amazon to Power Book/Music/Video Sales

License Visa to Power All Credit Card Sales

License Craig’s List to Power Classifieds

License AT&T to Power Yellow Pages

License Expedia to Power Travel

License YouTube to Power Video

License Skype to Power VOIP

License Apple to Power Music Downloads

License eTrade to Power Finance

11. $2.4 Billion Per Year from 100+ Merchandise Categories Paying $2 million Per Month

Gifting – Red Envelope, Gifts.com, Harry & David

Computers – Dell, HP

Gadgets — Sharper Image, Hammacher Schlemmer

Men’s Fashion – Lands End, Big & Tall, Gap

Women’s Fashion – Lane Bryant, Talbots, Gap

Children’s Fashion – Hanna Anderson,

Home Furnishing – IKEA

Discount Selling – Overstock, SmartBargains

Shoes – Zappos, Amazon

Lingerie – Victoria’s Secret

Books – Amazon, Barnes & Noble

Music – Amazon, Virgin

Video – Amazon, NetFlix

etc.


12. Conclusion

a. Facebook is “Addictive”

b. Facebook is “So, Distracting, Companies Must Ban It”

c. Facebook is “God’s Gift to Developers”

d. Facebook is “Nirvana for Direct Marketers”

e. Facebook is the first “Word of Mouse” Engine

f. Facebook is “Bloomberg Terminal for Your Life”

g. Facebook is the ”Lowest Cost Customer Acquisition Vehicle on the Planet”

13. Commercial

The GEM System for the Viral Design and Tuning of Apps

Growth – 1 to 2 million users in less than 1 year

Engagement – 5% to 10% active users PER DAY

Monetization — $30K to $60K in Ad Revenue per Million Installs Per Month

Here’s Josh(business2.0 founder) writing on what seems to be a tough situation for the two Indian entrepreneurs who launched their facebook app (Scrabulous) last year and are now sitting on a web property that gets 70 Mill page views a month

Hasbro, the owner of the game scrabble, is gunning to bring down the facebook app and has reportedly summoned Facebook to bring it down….

Just wait and watch… will update here on what happens next

By Josh QuittnerI can’t tell if Hasbro (HAS), the maker of Scrabble, is the smartest company in the world or the dumbest. Over 100 million sets of the game have been sold in 121 countries, in 29 different languages, according to everyone’s favorite source. What a cash cow.So, why in the world didn’t it create a free online version? Could it have something to do with the digital rights being in flux, thanks to a recent licensing deal that assigned online Scrabble rights to EA (ERTS). If so, why oh why would it let someone else do it, and reap the rewards? But that’s just what happened when two guys from Calcutta, Jayant Agarwalla, 21, and his brother, Rajat, 26, created a knockoff called Scrabulous.

Their site launched in 2006 and quickly signed up 600,000 registered users. Not too shabby for a year’s worth of work. So the brothers launched a Facebook application in June, 2007 and the results were stunning: 2.3 million active users as of today. For those of you keeping score, the application generated 270 70 million pageviews in the past month. Not a bad deal for a two-man operation.

But all good things must come to an end, which is bad news for Scrabulous fans, and even worse for the Agarwalla Bros.: Hasbro’s trying to shut the site down. “They sent a notice to Facebook about two weeks ago,” Jayant confirmed to me. “The lawyers are working on it.”

As a recovering Scrabulous addict (actually, I have since moved on to Facebook’s harder stuff, Texas Hold ‘em), I’m devastated. But as a tech writer and life-long student of what passes for Internet economics, I’m baffled. Is Hasbro just a stupid Potato Head? Or is this a brilliant game of Stratego?

My calls to the company have so far gone unanswered. A spokesman for Facebook, who said she was unaware of what was in the works with Hasbro or Scrabulous, said, “we don’t typically comment on legal matters.”

If I were an evil genius running a board games company whose product line spanned everything from Monopoly to Clue, I might do this: Wait until someone comes up with an excellent implementation of my games and does the hard work of coding and debugging the thing and signing up the masses. Then, once it got to scale, I’d sweep in and take it over. Let the best pirate site win! If I were compassionate, I’d even cut in the guys who did all the work for a percentage point or two to keep the site running.

Perhaps that’s what will happen since both the Scrabulous site and Facebook app are still up and running. Indeed, Jayant told me that he was hopeful they’d find an 11th Hour solution. “We’re trying to work out some kind of deal,” he said. I hope so, too.

Jayant said that he didn’t exactly understand what all the fuss was about. Its ability to generate insane numbers of pageviews notwithstanding—he said some players play as many as 170 games at a time on Facebook—the application isn’t throwing off that much money. He declined to say exactly how much, pegging revenues at “over $25,000 a month.” Hmmmmm.

The brothers got the idea for Scrabulous after becoming Scrabble freaks a few years ago and playing at another free site, Quadplex. After it started charging users, however, they decided to build their own “without thinking through the legal aspect at the time.”

Jayant pointed out that there are a number of other Scrabble knockoffs online. “I’m not sure why Hasbro actually picked on this,” he added. Because, dude, you’re the best.

Been using Facebook for long ….see how its grown into a giant and where’s the traffic comin from ….

Facebook

Quick Analysis: The hot talked company Facebook has the highest growth rate, and at Forrester we predict it to achieve the same number of registered users as MySpace in Q4 of 2008, or early 2009 given the current growth rates. The widget platform, which launched summer 2007 has had strong growth as more than 13,000 applications have been launched. Please don’t call this the MySpace killer as each of these sites serves a different demographic, with a different purpose, and different tools. Facebook is more of a ‘lifestyle’ play that allows members to connect to each other.

General Growth
* More than 60 million active users
* An average of 250,000 new registrations per day since Jan. 2007
* An average of 3% weekly growth since Jan. 2007
* Active users doubling every 6 months

User Demographics
* Over 55,000 regional, work-related, collegiate, and high school networks
* More than half of Facebook users are outside of college
* The fastest growing demographic is those 25 years old and older
* Maintain 85 percent market share of 4-year U.S. universities

User Engagement
* Sixth-most trafficked site in the United States (comScore)
* More than 65 billion page views per month
* More than half of active users return daily
* People spend an average of 20 minutes on the site daily (comScore)

Applications
* No. 1 photo sharing application on the Web (comScore)
* Photo application draws more than twice as much traffic as the next three sites combined (comScore)
* More than 14 million photos uploaded daily
* More than 6 million active user groups on the site

International Growth
* Canada has the most users outside of the United States, with more than 7 million active users
* The U.K. is the third largest country with more than 7 million active users
* Remaining top 10 countries in order of active users (outside of the U.S., Canada and UK): Australia, Turkey, Sweden, Norway, South Africa, France, Hong Kong

Platform
* Over 7,000 applications have been built on Facebook Platform
* 100 new applications added per day
* More than 80% of Facebook members have used at least one application built on Facebook Platform


MySpaceQuick Analysis: MySpace the largest Social Network in North America maintains a dominant position as media site, primarily aimed at youth, giving them the opportunity to relate to brands and bands, as well as self-express. This site will continue to do with advertisers and marketers. Expect to see more TV and video networks to integrate and work with MySpace, who has the new generation that Generation X was to MTV.

Metrics
· MySpace has more than 110 million monthly active users
around the globe
· We are the country’s trafficked site on the Internet
· 85% of MySpace users are of voting age (18 or older)
· 1 in 4 Americans is on MySpace, in the UK it’s as common to
have a MySpace as it is to own a dog

·On average 300,000 new people sign up to MySpace every day,
this month we broke a record and had 4.5 billion page views to the
site in one day.

We are localized and translated in more than 20 international
territories: U.S., UK, Japan, Australia, France, Germany, Ireland, Italy,
Spain, Mexico, Canada, Netherlands, New Zealand, MySpace en
Espanol, Latin America, Austria, Sweden, Norway, Denmark and
Finland.

·MySpace is one of the fastest growing websites of all time,
we have:
·100 Billion rows of data
·14 Billion comments on the site
·20 Billion mails on the site total
·50 Million mails per day (more than Yahoo, Hotmail,
or Google)
·10 Billion friend relationships
·1.5 Billion images
·8 Million images being uploaded per day
·60,000 new videos being upload to MySpaceTV each day
·More than 8 million artists and bands on MySpace Music
Acts including Lily Allen, Sean Kingston, Arctic
Monkeys, Dane Cook discovered on the site by users

Company Details
·Launched in January 2004
·Acquired by Fox Interactive Media in October 2005
·Los Angeles-based
·Founded by Chris DeWolfe, CEO and Tom Anderson, President

 266px-facebook_logosvg.pngFacebook is launching a  profile clean up tool as a response to thousands of users complaining about it. Goes to show Facebook being so active in constantly monitoring User interface challenges for its users.

But how do u think this will work? A logical way would be that it’ll let you push all the not so used app’s into an archive page a click away from your profile based on your activity level on that app……. You still will have control of chosing what goes into the More section.

Yes that is how the tool will work, it will recommend that users keep the Friends, Mini Feed, Wall, Basic and Personal Information boxes, as well as the top 12 application boxes they have added. A “Show Extended Profile” link will be added to the bottom of the profile page that will show profile boxes for all the other apps the user has installed.

Guess it’s time for everybody to put on the gloves and start cleaning …..

Here’s the Release from Facebook:

We wanted to give you a heads up about some upcoming changes to the profile and how your application’s profile boxes will work. As time has gone on, we’ve received increased complaints from users that friends’ profiles are getting too cluttered, and that people are having trouble finding the information they are looking for on their friends’ profiles. On the other side, users are complaining that their own profiles are cluttered, and they have installed so many applications that it has become overwhelming to un-clutter it.

To benefit all users, therefore, we will soon be launching a “profile clean-up” tool. Similar to how your computer’s desktop will remind you to get rid of unused icons, this tool will give users the option to move extra profile boxes to an “extended portion” of their profile. Users can choose to move these boxes; we will recommend that they keep the Friends Box, Mini-Feed, Wall, Basic and Personal Information as well as the top 12 application boxes they have added. At the bottom of the profile will then be a link to “Show Extended Profile”. Any user will be able to expand the profile at any point in time to see all the applications a user has added to their profile.

We believe this change will allow users to interact with all of their applications in a more meaningful way. In addition to allowing the profile page to load faster, this means users will have an easy way to publicly acknowledge their favorite applications. We want platform applications to be a fully integrated piece of Facebook, which is why we don’t want users to feel that these applications have somehow infringed on the simplicity of their Facebook experience. We will continue to keep you posted on any changes we make to Facebook and to Platform.

Here’s a quick look at some important Facebook updates that are expected to launch in 1Q 08:

1) Friend Lists Privacy Controls

A few weeks ago, Facebook took the first step toward enabling more efficient friend management with the release of Friend Lists. However, as was noted at the time, the killer feature of Friend Lists — Privacy Controls — was nowhere to be found. The good news is Facebook is working on this, and will allow users to control visibility for their profile, photos, and apps using Friend Lists soon.

2) Facebook in New Languages

It has been known for a while that Facebook is working on translating the site into a few new key languages. However, beyond this initial step, Facebook is planning an aggressive “crowdsourcing” approach to translate the site into dozens (if not hundreds) of languages around the world by harnessing the collective volunteer power of its user base. Soon, Facebook will launch a “Translations” app (which we saw briefly a couple weeks ago) whereby users can enter translations for every Facebook menu, button, and copy item. (To all Facebook users in Turkey: Facebook will be available in Turkish soon!!)

3) Blasting Messages to Groups With More Than 1,000 Members

Facebook marketers have been banging their head on the wall for a long time because of Facebook’s cap on the size of groups you’re allowed to blast messages to. This has caused many to migrate their group members to Pages, or even other websites, in order to enjoy more robust group communication tools. However, Facebook will soon be removing this ceiling, meaning Groups will become a more viable option for many grassroots marketers and large communities.

Coverage On venturebeat

facebookworld0110082.pngA set of useful Facebook updates are slated to launch soon, including versions of the site in other languages, a way to send messages to large groups, as well as tools for controlling what friends get to see about you.

Facebook is asking “translators all over the world to translate Facebook into different languages,” as its new Translations application describes its purpose. “Join our community of translators and make Facebook available to everyone, everywhere, in all languages.” (The app’s bolding, not mine.)

This is a very clever way for Facebook to get all its language translating done through its users — for free, I assume. The app is in limited beta, and we haven’t had a chance to look at it first hand. Apparently, though, there’s a sort of group translation process, where app users submit translations for different parts of the site, then other app users vote to approve those translations. Mashable got an early look last month, see its write-up for more details.

A couple of other features will soon be released, as well, according to Inside Facebook’s Justin Smith.

Administrators of Facebook groups with more than 1,000 members will be able to send a message to all of those people at once. Previously, Facebook limited the number of people you could message to 1,000.

Facebook will also add privacy controls to its “friends lists” feature, that it introduced last month. Basically, the feature lets you manually create lists of friends, then see things like activity updates for each list. However, it launched without privacy controls for blocking lists — say, your coworkers — from seeing specific things about you, like your Facebook album photos. Soon, according to Smith, you will be able to control visibility of your profile, photos, and apps for your lists.

letsprovelogo.pngA 23-year old programmer in Thailand has launched a Twitter-like service that lets users add location-based information to their Facebook profile, website, or blog.

The Thailand-based service is called LetsProveWhere, and Peerapong Pulpitpatnan (aka “Pete”) developed it almost single-handedly in just three months. After a few days, he’s reporting about 100 registered users.

letsprovephoto2.pngPete says he got the idea for the service from films like Deja Vu and Minority Report, because technology in those movies was able to record people’s movements automatically. He sought to create a program that would let users to do just that, especially from their mobile phones.

Right now, but for a couple of features (uploading pictures from mobile to LetsProveWhere as well as entering a location), Twitter may not have anything to worry about, because it enjoys plenty of momentum with its service, launched earlier and used by more people. But Pete has big plans: He envisions a real-time travel log service that lets you update text, pictures, video, and voice from mobile or computer — all formatted into embeddable maps. He says that people’s travel/location logs will be the new way to find travel information, potentially pitting him against the likes of Dopplr and ImThere.

Pete started work on LetsProve in November 2006, and his first creation was a project management tool, which he quickly left due to the product’s lack of differentiation from its competitors. After that, he launched LetsProveTV, a Thai-language video-sharing site after only three months of development. The site, which according to Pete receives 3,000 to 4,000 unique visitors a day, was a response to slow bandwidth in Thailand that cripples access to foreign sites as well as a government censorship that blocks most foreign video sites.

letsprovescreen2.pngThailand is still stuck in web 1.0, he says. And the few start-ups that are entering web 2.0 are, for the most part, Thai-language clones of foreign web apps. His LetsProveTV service falls into this category. But he has other directions for LetsProveWhere; his main focus is the U.S. and European markets (his servers are located in the U.S.), yet he’s partnering with a Thai telecommunications company to co-promote a package with lower rates for sending text messages.

Pete invested $3,000 of his own money in LetsProveWhere, money raised from a profitable investment in a document outsourcing company. He also generates revenue through AdSense on LetsProveTV.

For now he’s counting on viral growth spurred by tech blogs and friends sharing with friends, but he’s looking for $1 million funding to build a team and further develop his ideas to expand the service. If funded, he plans to move to the U.S.