At least every few days, the question of what social network companies, particularly Twitter, Facebook, and MySpace are worth.
The two sides of the debate are these:
- Social networks have tens of millions of members, and all those people are worth something.
- The revenue of these companies is tiny in comparison with their audiences. Their future revenue may not be terribly good either.
Facebook was given a valuation of $15 billion just two years ago when Microsoft made an investment in the company. More recently, a Russian venture firm put money into Facebook at an implied value of $10 billion.
Depending on whether analysts use Facebook’s own numbers or those from independent research firms, the network has between 200 million and 300 million users. Comscore puts its U.S. unique visitor audience closer to 85 million.
By any measurement that is a lot of traffic, but, Facebook management has said the company will do little better than breakeven on revenue of $500 million this year. That means revenue per user is incredibly small compared to properties like Yahoo! and AOL.
MySpace, which is owned by Rupert Murdoch’s News Corp. (NWS) He has made it clear that he is not happy with the property’s performance and has thrown out all of MySpace’s management and installed the former CEO of AOL to run the business. Industry experts believe that MySpace has revenue of close to $800 million, but its audience is falling, so sales are likely to be down too.
The trend at MySpace may tell a great deal about the future of social networks. Users tired of it after three or four years and moved to Facebook, or, of more concern, left the social network world altogether.
The hot hand in social networks is now Twitter, the microblogging site, which has an implied value of $1 billion or more based on its last round of financing.
Recently-released documents from the company say that it hopes revenue will hit $4 million this year, about what a large gas station would do in annual sales. Twitter projects it will have one billion users in three years, but clearly has no clue about how it will make money on them.
A recent article in Wired made the point that Twitter is controlled more by its users than by its management. Users de facto set the rules of how the service can be used. This kind of environment, one in which the prisoners are in charge of the prison, is just what marketers worry about. Who wants to put a Cadillac ad next to obscene microblog messages? No one. Getting advertising for Twitter will be close to impossible.
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