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Brier Dudley's blog

Brier Dudley offers a critical look at technology and business issues affecting the Northwest.

September 25, 2007 at 4:17 PM

Facebook’s rumored valuation is insane

Facebook is creating some nice business opportunities for software developers, but extrapolating a $10 billion value out of Microsoft’s possible $300 million investment in the company seems wacky.

That may be the calculation that investors and bankers are making, but it seems like a tablespoon whipped into a gallon by dealmakers.

It seems as if they’re hoping to make a last big splash before the downturn in ads and the Internet sector that Henry Blodget’s been talking about lately. Placing a few leaks is always how they seem to goose the bidding.

I think Microsoft’s offer, if correct, says something different about the long-term value of Facebook.

If Facebook were a crucial component of the online ad world’s foundation, Microsoft would be offering billions and you probably wouldn’t be reading much about it until the papers were signed. Microsoft strategically leaks all the time, but not so much when it’s making deals.

Steve Ballmer is still kicking himself for not getting DoubleClick, a company Microsoft viewed as critical. That’s partly why he jumped on aQuantive, a company that steadily worked its way into that foundation.

But Facebook doesn’t bring that much — besides a wave of new users — that Microsoft doesn’t already have or couldn’t build from spare parts. That wave came from other social networking sites that had the buzz yesterday. Has Facebook figured it all out? If so, would Microsoft offer as little as $300 million?

Microsoft is desparate to catch up to Google. A stake could keep Facebook close and Microsoft plugged into its direction, without risking a huge investment in a business that could lose users and developers to the next hot thing. The total valuation doesn’t matter that much if Microsoft gets those things.

Maybe Microsoft is being especially clever and goading Google into countering with a huge investment in Facebook, just as the search company is trying to be more careful about its expenses and facing a possible slowdown in advertising.

I’m not trying to diss Facebook. It’s likely to be here for some time and, as I said above, create opportunity for smaller companies.

But after reading so many stories about its huge value and potential investors, it’s feeling like one of those perfectly groomed houses that sits on the market a long time because it’s priced too high.

Maybe I’m totally wrong here. The $10 billion valuation could indicate that biggies like Microsoft and Google are still so desparate to win the Internet war that they’ll pay the sky for the most promising Web startups.

That would be inspiring to all the smaller companies working their way up, but it doesn’t seem realistic.

My sense is the big players are starting to hunch over the cards they have on hand. Is Facebook the next billion-dollar fairy tale, or are those over for a while?

Comments | Topics: Google, Microsoft, Startups

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