Friday, October 1, 2010

Facebook next steps

Facebook, the world largest social network with over 500 million active users (logged in with the last 30 days), has so far a success excellence.
However the Facebook company has at the moment only one product (kind of), the same product (with a lot of enhancements) since 2004 when everything did start in a dorm room.
A company relying on only one product is full of risk, what if an angry employee takes the site down and it takes days to get it running again? What if suddenly all members are closing their account?

Surely with such a big member base and server farm both is very unlikely.
And Facebook is not 100% relying on one product. I counted since 2007 a handful companies bought by facebook.,, Parakey, Chai Labs and Hot Potato.

But we will see in the near future a lot more acquisition through Facebook.

To buy or invest in other companies (which would be logical step to extend the product line) requires a lot of money or pre IPO shares. Facebook had their last two investment rounds in 2009 and June 2010. Digital Sky Technologies made a $200 million investment and Elevation Partners $120 million which values the company at more than $30 billion, according to recent trades on Sharespost, a secondary market for private shares.

Right now Facebook has 1,700 employees with an average salary of $95,000 (source: Facebook has 30,000 servers supporting its operations. This number is from October 2009 most recent number I could find.

The revenue in 2009 was estimated $900 million.

All employees costs (salary + 35%) together would come to around $220 million a year. The servers can be easily another $35 million. This is around $250 million a year. Let us put some other $250 million into the pot for all other costs.
This would still leave for Facebook $500 million for acquisition.

Zuckerberg is always denying that Facebook will go soon to market, but with almost $300 million in funding it will happen soon. The investors want to have their money back when the profit could be the highest. I don't see that the hype can be bigger for facebook. I think it will not be more than 6 months till Mark Zuckerberg announces the IPO.
With the potential money he could even invest much more in acquisitions.
Mark Z. is smart and seems to like goggle, at least he has parallels to googles founders. He should learn from Sergey and Larry. They are a perfect example to make out of a search engine a consortium of many products (video platform, email, browser, OS, schedule management). They achieved it by developing new products but as well by acquiring 82 companies in the last 9 years.

I bet on Facebook to be one of the biggest IPO reaching $40 billion, and that Facebook will acquire 15 companies in the next 18 months to extend their portfolio.

- Posted using My iPad

Location:Spinning Wheel Ln,Spring Hill,United States

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