My Facebook App is Worth $4 Million
Last night I was riding home and came up on Patrick Cameron again on the last leg into Boulder… we always ride slow and have good conversation which is cool. Last night we talked about Facebook. I have been paying attention to FB, but I have not yet found a killer feature, use case, or application. I’m not going away from FB, but I am not yet completely engaged. FB is certainly all the rage right now, so you can’t ignore that. On a side note, there is something that is much more interesting to me - more on that later RSS 
Brad wrote about FB today and presents a potential problem with the FB model – the premise is that developers don’t have a clear monetization path. I recalled reading about FB monetization options for developers in a mag @ Barnes and Nobile while the kiddos terrorized Thomas and all his train buddies. I just fished out a Fortune article on FB and sure enough Matt Zuckerberg, CEO, says FB will impose no limitations on how developers make money. Says Zuckerberg: “They can sell sponsorships, they can have ads, they can sell things, they can link off to another site - we are just agnostic.” I also recall seeing something, somewhere about third party apps not being able to place ads on pages that have Microsoft ads or something like that. Anyway, it sounds like developers do have a way to monetize their FB application.
So, this leads to the following question… is there enough revenue potential to pursue building FB applications? The answer depends. If you are a single developer or small shop then you can quickly build a product with a rough value of 4 million… Not too shabby and not a bad double or triple for an entrepreneur. But if you are planning to build a business around FB then you may be out of luck if you want to hit it out of the park; a max 4 million valuation is just not enough. And, as Brad points out, if you get too much traffic, FB will build that functionality internally or you will realize/settle for the 4 million dollar exit.
So, where does the 4 million come from:
- 25 million active Facebook users today
- 20% will install your app
- 20% will be active users of your app
- 20 dollars per user – this seems to be the approximate going rate
- 20% of that 20 dollars goes to you (Facebook gets the left eyeball and most of the right eyeball)
The total = a 4 million valuation (that assumes your application is good)
[ps. I love the 80/20 rule. It makes pulling numbers out of thin air really easy]
Like I said, this is a great opportunity for a developer or three but not so good if you want to build a big business. Oh yeh, I know Facebook is growing like a weed out of control, but that won’t go on forever. Just like MySpace is tired today and FB is hot, tomorrow FB will cool off and NewCo Social Site will be hot. It’s just the nature of our industry.
Still loving FB, the FB open platform, and waiting for the killer FB app!