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A Second Internet Bubble

Doomsayers have been forecasting for months that the very large sums of money being paid for various Web 2.0 companies is leading to an Internet Bubble 2.0. Rupert Murdoch's purchase of MySpace, Google's purchase of DoubleClick, and the subsequent rush for online advertisers was seen by many to be a harbinger of things to come.

Since the (over)valuation of MySpace, popular social networking site Facebook has been rumoured as the next major social networking site purchase due to take place. Although in the past the site's founders have indicated that their sale price is a billion USD (if not a little bit more), recent reporting that Microsoft is looking to purchase 5% of the site for between $300 to $500 million USD, suggests that the site has now been valued at up to $10 billion USD.

Even when the founders were pushing for a billion dollars, many observers thought that the site's founders should have been happy to take the money they were being offered at the time (in the realm of $500 - $700 million USD). A lot of observers could not see where $1 billion worth of value was coming from (besides the 30 million user base). At the maximum estimated value of $10 billion USD, each Facebook user would be worth almost $300. Whether this is the value that each user will represent in advertising revenue is another question.

With estimates of around 60% of registered users logging into the site at least daily and the addition of 1 million users per week it could be the rapid growth in potential eyeballs for advertising that has led Microsoft to be willing to pay such a large amount of money for such a small slice of the company that it is already the primary advertising provider for. Just how many users are actually clicking on advertisements is not known, but given that it is the primary revenue source for Facebook, it is a number that they will be hoping increases.

29 September 2007

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