At some point every so-called free web service has to find a way to monetize their works so those ever increasing costs can be covered and VC money begins to dry up as they look for their exit strategy with the piles of cash they figure is theirs. Facebook is no different except maybe that the financial windfall expectation are riding the tsunami of VC greed.
Much – if not the biggest percentage, of Facebook’s profitability is relying on their newly announced Beacon service which allows any purchases you make at Beacon supporting site to be displayed on your graffiti wall for everyone in the world to see.
Now I’m not going to get into how much I feel this is an incredible invasion of privacy which didn’t even exist when the vast majority of members signed of to Facebook. I am not interested in discussing how I feel that this implementation of Beacon being done after most people joined could in effect be the one thing that breaks any contracts you signed with Facebook when you clicked on that Submit button as part of the sign up process.
What I am here to talk about is something that Tony Hung mentioned in a post earlier this morning about the whole Beacon advertising platform on Facebook and how this ad program was a principal driving force behind its recent $15Billion dollar evaluation. As Tony said in the post:
This is good news for everyone, of course, except for Facebook, who has yet to really monetize itself in earnest, and more importantly was really betting the farm on this play. Rather, they were using the hype *from* Facebook Beacon and its social ads to pump up its theoretical evaluation to score a huge infusion of cash from Microsoft, and huge deals with Fortune 500 companies as well.
What will be interesting *now* of course, is if Facebook Beacon does crumble, how *will* it affect the deals it cut? Will any of them expect a (partial) refund? (perhaps a “restructuring” of their initial deal) And if it does affect the perception of this “advertising revolution”, will it in turn affect Facebook’s theoretical evaluation?
Aside from Tony’s main point about the real value of this billion dollar evaluation was a mention about Microsoft’s successful involvement of $240Million in order to gain a foothold within Facebook and it’s international display advertising reach. As Tony adds “…{regarding Microsoft’s purchase].. What is also kind of interesting, of course, is looking in retrospect how much of this new evaluation will $240M buy.”
To me this is the ultimately interesting question. After all Microsoft is no dummy when it comes to business and it probably has some of the most intelligent on their acquisition team as well as some of the best lawyers of the corporate work on their payroll. So I believe it would be a safe assumption that they walked into the negotiations that were going on with Facebook with eyes wide open and knowing exactly what the possible ramifications Beacon could bring about. After all this was the same company that had tried to bring a technology called Hailstorm to market.
To assume that Microsoft didn’t know about and talk about it in their backrooms shows little understanding of Microsoft as incredibly successful business. They had to know that the probability of what is happening would happen. So why go to the effort of the negotiations and paying out the $240M?
Well if the scenario where the backlash against Beacon is severe enough and has a dramatic downgrading of Facebook’s value one has to look at who is in there to potentially pick up the pieces of what is admittedly a popular social network for what could possibly be a fire sale price. In this case – an a totally hypothetical one – the $240M paid by Microsoft could turn out to be an incredibly well placed and lowball down payment on one of the hottest net properties that blew it discounted one thing – people just might actually value their privacy especially when it comes to how they spend their money.
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