Is Facebook worth $15 Billion?

By Tom Daly

Account Executive

Last week Microsoft announced that it was to invest $240 million for a 1.6% share of social networking website Facebook. This puts the company that was set up only three and a half years ago by a 23 year old at a value of about $15bn. So one has to ask the question, why is Facebook valued at such an astonishing figure?

Facebook is a social networking website that allows users to set up personal web pages and communicate with their friends easily. Users can share photos, list their personal interests and exchange private and public messages. The site is free to use and generates its revenue from advertising.

Facebook has over 49 million users worldwide with 200,000 new users joining every day. The site receives more than 15 billion page views every month and is growing at a faster rate than rivals Bebo and MySpace. With the average user spending 3.5 hours on the site every month it is easy to see the enormous advertising potential. 

One of the unique features of Facebook is its use of applications and communities. It is here that some of the greatest opportunities for advertisers lie. In true Web 2.0 style, advertisers may now have the opportunity to target ads on communities and applications rather than simply placing ads on the site. According to the online research company eMarketer, it is estimated that $900 million will be spent on social networking advertising in the US this year. This figure is set to grow to $2.5 billion by 2011.

The $240 million deal will allow Microsoft to sell online ads for Facebook outside of the US for the first time. Microsoft already provides advertising for the US site however sixty percent of Facebook users are located outside of the US. Microsoft's move gives them more access to a global social networking audience quickly and easily.

But there is more to last weeks deal than just advertising revenue. The $240 million deal was only reached after a bidding war with rivals Google. Both companies have big pockets and the move highlights the increasing rivalry between the two Internet giants. Last year Google outbid Microsoft to acquire video sharing site YouTube for $1.65bn.

This month, eBay announced that it is writing $1.43 billion of the value of Skype after it paid $2.6 billion for the Internet phone service in 2005. Will Microsoft be able to justify the $240 million spend on Facebook? Only time will tell.