Dead 3.0

Via Mashable, Facebook is surveying users on a proposed classifieds system. Free to post on your network and a small price to post on other networks ($0.50 to $5.00 in the the survey). Smart move to test the price elasticity pre-launch. This is another way Facebook is reaching out to users, something I recently talked about here and on VentureBeat.

I read an interesting article on OnoTech on the need for craigslist to innovate. It’s all the more important given this announcement. Facebook is the site for a healthy portion of America’s youth. If this service achieves a critical mass, craigslist (of which I am a huge fan) is no longer the classifieds site. Smart move by Facebook to keep users coming back. It makes perfect sense to slowly roll out services with real value to users.

More as it develops.

For the most complete information, see Virginia Tech’s Collegiate Times. It’s been all over the news but it’s still shocking. Watching MSNBC yesterday morning, I couldn’t believe my ears when the fatality count rose from one to 20 in the blink of an eye. The final count of 32 struck close to home. Charlottesville, VA is a short two-hour drive from Blacksburg, VA and more than a few good friends from high school attend Tech. Thank God they’re all safe. In the moment after the shooting, the outpouring of grief from fellow students across the county was immense. I got multiple invites to join Facebook groups reaching out to support our peers at Tech. The group I am in at UVA already has over 2K members. The Collegiate Times has a piece on the Facebook outreach related to the shooting. Students are using Facebook to support our friends and family at Tech, organizing vigils and expressing sympathy. I rarely run out of words, but there really isn’t much else to say–yesterday was a sad day for all students, Virginians and Americans. Please take a moment of silence to pray for those affected, their friends and families.

Update: see my post at VentureBeat on the same topic.

(Editor’s note: I didn’t think about it at the time of writing, but the title of this blog (Dead 3.0) is somewhat ominous given the topic of this post. The title has nothing to do with the shooting, instead referring to another blog (Dead 2.0) which covered the myriad of foolish startups currently being launched (and their subsequent demise). Oversight on my part, apologies.)

See my post at VentureBeat about Facebook’s new design and changing direction.

Not too long ago, Facebook posted some interesting graphs on its blog. Ashkan at HipMojo posted an interesting valuation of Craigslist that got me thinking about Facebook’s value. Ashkan derived advertising revenue by multiplying pageviews by click through rate (CTR) by cost per click (CPC). Although Facebook is nothing like Craigslist, a quick, back-of-the-napkin look at Facebook through a similar lens is interesting. View the Google Spreadsheet I put together.

The first sheet (PAGEVIEWS) is based on the aforementioned graphs. Pageviews and registered accounts are growing 18.9% and 13.9% per month, respectively. Note the December drop in pageviews, but not registered accounts. Is this due to students being on winter break? I wonder if the site experiences a similar drop during the summer months?

The second sheet (CPC-VALUATION) is based on February pageviews (other assumptions are noted). CTRs among the Facebook demographic are likely below average. According to ValleyWag, one advertiser pegged the CTR at 0.04%. There’s a column for 0.04%, but I’ve highlighted the CPC range $1.00 to $1.50 and CTR range 1.00% to 1.50%. Why? These are the same numbers HipMojo assumes for Craigslist and I think they are achievable. As a (very) active Facebook user, I do not think they are fully utilizing their advertising platform. CTR could be raised by increasing the value and relevancy of the advertisements–more on that later.

I don’t think Facebook is worth as much as the highlighted cells show. A 35% profit margin and a 30 P/E is logical and relatively conservative though. HipMojo values the company at a little over $2B based on a social networking market size of $2.15B. I’m inclined to think this is much closer to the truth.

The third sheet (FB-REVENUE) is based on a ValleyWag-obtained screenshot of a company forecast. According to ValleyWag, rumor says Facebook is on-track to make $150M in FY07, a little below estimated. Of the estimated $172M in revenue, we see $139 derived from advertisements. We can back into this number using eCPM and impressions generated (eCPM/1000*impressions = 139M). MSNBC quotes a lower number of $100M.

Now my opinion: Facebook is a more powerful platform than MySpace. It’s because the Facebook community is really a thousand smaller walled-in communities (versus the chaotic MySpace). I remember using Facebook when it was still a group of elite schools. Not much has changed since then. Facebook has been careful to not commercialize the site and alienate loyal users. They’ve taken steps to solicit user feedback. They’ve implemented privacy controls and strict divisions between local networks that have fostered a greater sense of community.

While Facebook’s decision to outsource banner and search advertising to Microsoft guarantees them $200M through 2008, there’s an opportunity cost. Facebook recently (via PaidContent) extended the contract till 2011, a smart move if they’re thinking about pursuing an IPO, as HipMojo suggests. Yet there are two factors that make Facebook a powerful ad platform: (1) user data and (2) local communities.

First, Facebook users have willingly provided billions of data points to the company. Everything from Greek affiliation to favorite movies to interests and activities. So far, Facebook has not extensively leveraged this data to target advertisements. They are making moves to increase the amount of content though. New “sharing” features reveal Facebook’s plan (Andy Kessler, WSJ interview with Zuckerberg) to take advantage of user-generated content.

Second, Facebook needs to start thinking like college students. Local communities are based on local information-there are a thousand possibilities. Why not coupons from local restaurants? “Click here right now and get $1 off your pizza!” There are already some local advertisers posting flyers on the site, but Facebook hasn’t reached out to this segment of marketers yet. When it’s all said and done, Facebook’s users are worth more than MySpace users, in my opinion.

Sooner or later, investors such as Greylock, Accel and Peter Thiel are going to push for a harvest of their investment. Whether Zuckerburg and the VCs opt for an IPO or a big acquisition is an open question. At the same time, there’s no question Facebook represents an attractive target for companies looking to secure a well-established toehold in the social networking market–despite Facebook’s penchant for turning down buyout offers.

Via the Facebook Blog, a “Sneak Preview” group has been setup to introduce upcoming design changes and features. Personally, the new design changes look great to me. The redesigned navigation sports an Inbox, replacing messages and shares. Messages now more closely mirror emails with the capability to have multiple recipients and threaded conversations. Individual pages have been overhauled and each network now has a central page with demographics and trends among other information.

In light of the backlash from the News Feed changes, TechCrunch’s Arrington comments that the Sneak Preview group will help to “build consensus and dissolve criticism” around changes. He also makes the (somewhat unsupported) assertion that if Facebook were to sell it would go for more than YouTube. More coverage at VentureBeat as well.

The real power in Facebook is the user data they have aggregated. Users volunteer information about their favorite books, music, movies and more. Although advertisements are somewhat personalized, I think that Facebook could be doing a good deal more to tailor advertisements to user preferences. For example, if I indicated I was a fan of The Departed, it would be valuable to see an announcement when the DVD came out–maybe with a $5 off coupon. Targeted advertisements of this nature are very similar to what Google does with search, it seems a logical extension.

On a side note, Signal vs. Noise called Facebook’s privacy settings “overkill.” As a Facebook user, I’d tend to disagree that the icons serve no value. Being able to have granular control over your privacy is a necessary feature in this case. Not to mention, I like the icons.