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How Much is Facebook’s Market Power Worth?

Perhaps you heard some noise this week about a $50 billion valuation for Facebook. Or mumblings about a nine-month profit of $335 million? Or a potential IPO in 2012? Putting a value on Facebook is beyond my pay scale. But Facebook is the most important player in social media, and social media — along with mobile — is driving innovation across the entire technology spectrum. So to better compete against, partner with or invest in Facebook, it’s worth evaluating its market positions, strengths and weaknesses.

As a Technology Platform, Facebook has established itself as one of the largest Internet companies in terms of audience reach, frequency of usage, and ability to drive traffic to other online sites. Facebook’s APIs, Likes and Connect are widespread. While Facebook benefits from network effects, I suspect the current proliferation of APIs from players including Twitter, Google, and Microsoft, will continue. Net: Facebook should remain a leader in consumer technology, but likely won’t establish a winner-take-all platform.

Advertising is Facebook’s primary revenue stream, and advertising is a business driven by economic cycles and one that demands ever more cross-media campaign coordination and ROI measurement. As it develops targeting via its social graph, and builds out sponsorship opportunities and measurement systems, Facebook will be able to raise prices and garner more brand advertising spending. Net: Facebook has mass media status and plenty of growth opportunity, but it is an Internet-only media company that should focus on and beef up its efforts in brand advertising, and establish partnerships for search, ad networks, and email marketing.

Virtual goods from social games provide Facebook with $250 million in revenue, but it shows no interest in other digital goods like music and video. E-commerce, meanwhile, may provide some opportunity for Facebook retail storefronts, but the online mall approach never worked for portals like Yahoo and Aol.

To read more analysis on Facebook, check out my weekly column at GigaOM Pro (subscription required).

Image source: flickr user Franco Bouly

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2 Responses to “How Much is Facebook’s Market Power Worth?”

  1. My colleague wrote a post about this on Monday arguing that, while the investment is a staggering multiple for a private company, it has the same feeling of the bubble that we experienced in the year 2000. Here we are now, at the start of a whole new decade when global internet traffic has exploded. Like times before, the pundits still feel that they are adepting at foretelling the future of something so fickle as consumer appetite for dot-com products and services (see MySpace, once heralded as the most popular site on the net currently experiencing its death throes for a timely, real-world example). Facebook needs hard revenue and profit numbers to justify a valuation of $50 billion. Numbers it has yet to achieve. Numbers that will have to be driven primarily by consumer, not business, activity. If it does come to market with an IPO that has such a rich multiple, what ripple effect will this have as others attempt to get in on the action with overhyped buyouts and public offerings of other social media platforms? Are we already on the express track to another boom-and-bust cycle driven by an opportunistic pump-and-dump mentality? Share your thoughts here:

  2. Mainstreethost

    What their worth does not really matter to average consumer, we cannot relate to that kind of money. They are just too control happy and want to take over, someday soon they will be knocked of their perch. mainstreethost