A meme around whether or not Facebook was smart or stupid not to sell to Yahoo last year has been gathering steam. It is authored by Robert Young on Om Malik’s blog. Robert claims, on his bio page, that he invented pay per click advertising.
That probably tells you all you need to know about Robert’s credibility but for the moment let’s hear him out. His basic argument is that he likes the Facebook product itself but that he hears that advertisers don’t like it and “the key-determining factor will rest on how well Facebook monetizes this year”.
But that question has already been answered. MSN has agreed to pay them $200m over three years. The key determining factor will be how MSN executes against this agreement. Either way, Facebook has $200m over three years to anchor the companies operations to and with that agreement, completely defeats any talk as to whether they should have sold to Yahoo for $1bn or not.
Here’s why: Those hockey stick revenue projections so common among business plans? Any investor can have absolute certainty with Facebook that they are at least partly true.
Also, leaked documents from the Yahoo conversations show a vivid picture of the companies finances. Most of the inventory is sold for between 10-20 cents through ad networks and a small slice sold directly to advertisers for $5 CPM. Robert may have heard the $5 CPMs weren’t working out but MSN and others will be working hard not on that side but rather lifting the 10 cent CPMs to $1 over the next few years.
Not to mention it’s a pretty good time to be a publisher. Google will surely be willing to step in if MSN struggles. From all accounts, they are upping their agreement with MySpace. People ‘on Madison Avenue’ have also had a shit experience buying on MySpace. But who cares? It is affiliate marketers and direct response advertisers on the west coast that are providing the dollars, not the dinosaurs on Madison Avenue.
So from a purely financial perspective, should Facebook have sold? The answer, in my mind, is a flat no at $1bn. The multiple is too low given they have already negotiated their agreement with MSN and in the context of Google’s agreement with MySpace. As long as the core usage continues to hold and grow modestly, it is worth more than that.
