Facebook Will Sit Tight, As It Should

At the iMeme panel last week I had the opportunity to sit next to Jim Breyer and watch him take some tough questions from Adam Lashinsky about why Facebook doesn't sell at the huge numbers that are being whispered in the blogs and on the street.

Jim said something important that really wasn't picked up in the chatter about his comments. He said that all this attention on what Facebook is worth isn't doing the company any good. I commend Mark, Jim, and Peter for their obvious intentions to keep Facebook independent and private for now. I think Facebook will make a great public company at some point, maybe in the next year.

But selling the Company would be a huge mistake. First and foremost for the users. Any buyer will screw up Facebook. It's greatness comes from the fact that the people who run the company live inside the service, they built if for themselves and it works because of that. They have their pulse on the community and they are not likely to screw it up too badly.

If you look at most web services that have been bought, they've lost their mojo once they were acquired. What has YouTube done lately that is so great? Skype? MySpace? Delcious? Flickr?

I really don't see what a large portal/media company does for a web service and its users. I totally see what a large portal/media company does for a "monetization service" like FeedBurner or Right Media. Look at how successful the advertising.com transaction was for Time Warner/AOL.  But social web services/social media is different. I believe these services do better as independent entities.

So why do companies sell? Because of fear, boredom, and personal financial issues. It seems to me that Skype's founders got bored and wanted to do something else. Billions of dollars and boredom is a good reason to sell. YouTube's founders knew the copyright issues were going to be a huge distraction and that Google was a much better entity to fight that battle. Fear and billions of dollars is a good reason to sell.

Personal financial issues lead a lot of companies to sell. But in Facebook's instance, that's not an issue. If Zuckerberg wanted to sell a piece of his company, I'd buy it. So would any number of people. They'd be lined up. But it's unlikely that his shares would go any further than Peter Thiel, Accel, or Greylock who would likely snap them up at any reasonable price. So if Zuckerberg had personal financial issues, and I suspect he doesn't being so young, he could easily deal with those in a private sale transaction.

Bottom line is everyone should stop wondering about how much Facebook is worth in a sale transaction. Because it's not going to happen. Look for the IPO next year.

Comments

[Andy Swan]

Is an IPO where the sharks of Wall St is the buyer any better for users?

I guess the answer is probably yes, because Facebook could do a Google-like IPO and maintain absolute control over their vision.

Good post.

[J. Bly]

I believe that MySpace has not lost its luster since the sale to Newscorp. With the introduction and commitment to programs such as Secret Shows, Black Curtain screenings and the launch of MySpaceTV they continue to build tools that attract users and enhance user experience. The investment in these programs may not be possible without the support and backing of Newscorp.

[howard lindzon]

i do agree that if they IPO they should wait until their revenue pattern is more solidified. otherwise, risk of a didater in puiblic market is high despite the opening kick

[Chris Neumann]

IPO? That would be a shame for them - they should just stay private. Going public will only give competitors a view into what their numbers are, attracting competition. As you say, Mark Z probably doesn't need the money, so the only pressure to go public is to cash out the investors.

[rick]

Wow calling out Delcious! I love it.

[ashkan karbasfrooshan]

Yeah, the Delicious reference was, well, delicious. Appreciate your candor.

I agree IPO makes more sense than sale, but if the objective for the investors is to max out value, I think a sale in the $3.33-6B is the way to go because Facebook lacks the income statement to satisfy IPO investors, IMHO.

I outlined the dynamics and rationale of the $3.33 - 6B range quite in depth here:
http://www.watchmojo.com/web/blog/?p=1849

[Jason Vu]

Totally agreed on its independence. Looking forward to the first social networking service IPO.

[dave mcclure]

agree on this analysis. they should go IPO.

but that doesn't mean Google & Microsoft shouldn't try like the dickens to make it happen anyway:
http://500hats.typepad.com/500blogs/2007/06/facebook-world-.html

- dave mcclure

[Realist]

Cmon quit drinking the kool aid.
First, 90% or more of FB's revenues come from one source - Microsoft. Just look at the site, there are not enough ads or anything else running to support the company's current cost structure. Estimates say FB has 200+ employees. Second, with 90% revenue concentration, they are more of well funded Microsoft marketing program, than a true business. Third, given the high revenue concentration and lack of three years worth of solid financials, they just aren't a mature company or ready to be released into the public markets. Releasing these types of companies prematurely is what gave VCs a bad name in the post bubble period and here they are at it again.

[Robert Scoble]

I just jumped on this bandwagon with a post titled "why Microsoft doesn't deserve Facebook."

http://scobleizer.com/2007/07/17/why-microsoft-doesnt-deserve-facebook/

Good post!

[Peter C]

They may not be selling ads hand-over-fist, but give them time. Given the detailed data they have on users, there's no reason why they couldn't monetize their users as good, if not better than Google.

Killer App: social networking search engine. Monetize the hell out of that!

I'd be excited to see them go IPO. We're getting bored of all the huge companies buying up everything. Where's the fun in that? Like you said, they're buying up everything and it's killing anything interesting.

[Sam]

A sale of Facebook would allow founders and investors to realize a return on the excellent work that has been done developing the company to where it is today. What impact a sale or change of ownership would have on Facebook remains to be seen but an IPO process would be interesting to observe. Would the primary focus of the IPO be on providing an exit/partial exit for existing shareholders or raising capital for continued expansion? I don't know enough about the operational side of Facebook to understand their capital requirements.

[scottorn]

one other thing, the value of Facebook sky rockets the second someone figures out how to make money from one of the third party applications.

[Glen Kacher]

Skype sold because the offer was WAY above any valuation that the public market would place on it.

[Tom Shelley]

Why would Zuckerberg sell his baby? He must be having the time of his life. He hardly needs the money. Keep it independent for as long as possible.

[Tom Labus]

The issue is the lack of innovation once a company is acquired for big $. Skype was the true out of left field change of the last 5 years but have become ho hum since eBay.

Is it just $ drains innovation?

[Kendal H]

My day has bothered me without a new post on AVC

[Adrian Heilbut]

Agree with Howard that they will be in better shape once they figure out the revenue better. Facebook doesn't seem to have tried too hard yet to maximize the value that they can get from ads. They know so much about me that they could do as well or better than google with targeting; most of the ads shown are inane (which is probably Microsoft's fault!)

PS.
Delicious still has mojo, despite its stagnancy!