Quick quiz: How does an Internet laggard catch up?
If you're Microsoft, you throw boatloads of money at the problem and buy your way in. The company according to the Wall Street Journal is in talks with FB to buy a 5% stake for $300 to $500 million. That would value the private company at $10billion or more. Microsoft may have to fend off Google, which has also shown interest in FB, and the FB owners may actually want more money (yes, $10b valuation is considered stingy). So it's not done till it's done. Yet the scenario says wonders about the state of the social media business--and raises fears that we're looking at hyperinflated model, ripe for a fall ("irrational exuberance" anyone?)
It's not that FB isn't valuable and social media isn't a force. FB is adding 200,000 subscribers A DAY, and social media is here to stay. There's momentum we haven't seen in years. FB pulled off some brilliant moves, opening the doors to developers in May to crank out thousands of new applications and paving the way for the post-college crowd to join--which it has, in droves. But the business (and advertising) model hasn't been proven, and it's unclear how much they can wring out of their members. This isn't Google.
FB's Mark Zuckerberg still needs to figure out how to monetize its product, and as Eric Hippeau, a
managing partner of Softbank Capital, say in the article, "It's not that easy to monetize social media."
Right now FB is being subsidized by Microsoft, to the tune of $75 million a year. But when that deal runs out, as Hippeau points out, they're going to have to crank up the ad sales machine--and the advertising model is still in question.
Think about how you use these sites. Very few people click on the ads. They're in it to meet and connect with people, not to buy cameras, deodorant or a car.
The article points back to another hyperinflated model--GeoCities-- as a warning.