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Murdoch remains smartest man on the block 

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As Facebook valuations hit new heights today with talk of figures of $10bn being bandied around, and as high as $15bn, Rupert Murdoch's acquisition of rival MySpace is looking like a very smart move.Not only smart, but a fantastic investment, but this wasn't always the case. At the time in 2005 some people were saying that £580m was a lot of cash.

Now the truth has been revealed and while $580m is a lot of cash, it is nothing compared with what he would have to pay now to gain control of MySpace, still the market leader.

Microsoft or Google, who are both interested in taking stakes in Facebook, will get just 5% of Facebook for that kind of money if it is lucky. It might have to pay more if Facebook founder Mark Zuckerberg holds out for more. And he might. He has proved pretty good at holding out so far.

Last year, he knocked the idea of Yahoo! buying his venture for $900m out of the park. He wasn't interested.

All of this on the back of a company that makes next to no cash. Not yet at least.

The problem with the valuations, like many dotcom valuations, is that they have little basis in financial reality. Facebook does not reveal how much income it makes and its only revenues are thought to be advertising income from a deal with Microsoft. The Financial Times quoted a report by Pali Research analyst Richard Greenfield, which estimated that the company brought in $60m-$96m in annual revenue and no profit to speak of.

Greenfield said: "There may be competitive reasons to be connected to this asset beyond what the specific valuation is today. You may be paying a premium to keep others out.”

It appears the smart way to now go is to go it alone. Zuckerberg doesn't need to sell. He just needs to build the business, which is what he appears to be doing. He needs cash to expand and that cash is readily forthcoming.

This is still very early days in social media. We are all still feeling our way and working out what is possible and what is not.

New ideas are spilling onto the page all the time. Yesterday, MySpace opened up new ground in the mobile space by rolling out a mobile version. I was thinking about this as I played with my Crackberry last night while sending a message on Facebook and half watching something on TV.
Published Sep 25 2007, 03:03 PM by Gordon Macmillan
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Gordon Macmillan

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