The Force that is Facebook

As the days countdown to the Facebook IPO, many industry watchers have put forth their opinion regarding the value of Facebook as a company. It seems to have become the national pastime to guess what Facebook will ultimately be valued at, and what will happen next within the organization.

Because we, at Drake Direct, are in the Marketing Analytic and Social Media Strategy space, we are close watchers of Facebook. We, therefore, decided to review what we knew about Facebook to determine if they are worth the estimated $100-$104 Billion.

We took into consideration the following when we evaluated Facebook:

• Advertising trends
• Online vs Offline
• Decomposition of Online advertising spend by channel
• Decomposition of Online advertising by major providers
• Member growth trends for Facebook
• Time spent on site (Facebook Vs. Google)
• Unique visitor growth (Facebook Vs. competitive set)
• Growth in Facebook Business Pages

Additionally we considered their revenue streams:

• The traditional advertising model as it relates to Facebook and the competitive set
• Business growth related to apps, games, and virtual eCommerce
• Potential new sources of revenue
• Mobile ads
• Search
• Social Reader Fees
• Initiation of fees for Business Pages
• Recent acquisitions of Instagram and Tagtile

In weighing all of the facts that others have put forth about Facebook, we have concluded the following:

• Currently Facebook is under monetized. This was probably a strategic decision on the part of Facebook management. It is clear that the priorities for the organization were first to ensure their infrastructure was solid, and secondly to monetize the business to the fullest.
• Facebook’s user base is very large, active, and loyal. Their growth into new areas cannot be judged by their current business activities. No one could have predicted that Google, a dominant search engine at the start of the Internet boom, would have developed into the empire it is today.
• As database experts, we see Facebook’s biggest, and perhaps most under-reported asset, as their database. Facebook possess a database of 900 million users, with virtually every piece of information about an individual from relationships, to political affiliation, leisure time, vacation preferences, entertainment interests, brand preferences and more, all given freely by users. Facebook sits as the gatekeeper, but can monetize this enormous asset by charging a fee to target marketing communications for advertisers. One metric of a database business is the value relative to the database size. By this metric, at $115.55 per user, we feel that Facebook is a relative bargain since on average, there should be at least this much value, on average, per user to be gained.

To view the entire white paper, you can download at: www.drakedirect.com/facebook_whitepaper_by_drakedirect.pdf

We hope you enjoy,
Rhonda Knehans Drake & Perry D. Drake