Is MySpace worth $3 billion, or $20 billion? It depends on how you value a user.
It’s time to start comparing the big global social networks on something other than unique visitors and page views. I believe an effective way to value a particular user is based on the average Internet advertising spend per person in the country they live in. The higher the spend, the more value the social network can get out of the user by serving them advertising and other products. That means that, for now, users in a handful of key countries are worth far more in terms of revenue potential than those in the rest of the world.
We’ve begun to build out a model that looks at social network usage by country/region and compares that to available data on total Internet advertising spend in each of those countries. The model is then able to turn an apples-to-oranges comparison into an apples-to-apples comparison. The early results are surprising.
The ultimate financial value of any asset is, ultimately, what the market will pay for it. We have only a few data points to help us: Facebook, Bebo and LinkedIn are worth $15 billion, $850 million and $1 billion, respectively, based on relatively recent valuations (although only Bebo was actually sold completely; Facebook and LinkedIn raised investments at those valuations). The last valuation of MySpace was just $580 million, back in 2005 when it was acquired by News Corp.
Which valuation is most “correct?” It’s hard to say based on the data that’s been available to date, which is mostly just aggregate page view and unique visitor numbers from Comscore and other services. Based on worldwide unique visitors, for example, Facebook recently overtook MySpace to become the “largest” social network.
According to raw worldwide user number, the biggest social networks are Facebook, Myspace, Hi5, Friendster, Orkut and Bebo, in that order. But when you apply the model that we’ve created below, which takes into account where users live, the rankings change substantially. MySpace is by far the most valuable social network based on available data. A competitor like Orkut is worth only 1/20th of MySpace, even though it has nearly 1/4 the number of users.
Properly Ranking Social Networks
Our model takes Comscore data for available countries and regions. We’ve graphed each of 26 well known social networks with the data we have been able to collect. We’ve then calculated the average advertising spend (estimated by PriceWaterhouseCoopers in a recent report) for each person online in each of those countries. For example, in the U.S., the total 2008 estimated Internet advertising spend is $25.2 billion. We’ve divided that by the number of people online in the U.S. according to Comscore (191 million), to get an average Internet spend per person of $132. View the raw data and calculations here.
The U.S., by the way, is only the 4th most valuable market per Internet user, trailing The UK ($213), Australia ($148) and Denmark ($144).
We’ve then multiplied the average Internet spend per user in each market with the number of unique users each social network has in that market, essentially creating a “weighted average” based on the advertising dollars chasing users. If a social network has more users in the U.S., Japan, the UK, Germany, Australia, and other bigger advertising networks, they will have a higher weighted average valuation.
We believe this model is an effective way to rank various competing social networks. It bumps down networks like Orkut and Friendster who have tens of millions of users in markets with very little advertising spend, and bumps up networks with lots of users in higher value markets.
Based on this model, MySpace is by far the most valuable social network. Second place Facebook has just 75% of the value of MySpace (even though it now has more users), followed by Bebo (26% of MySpace value), Hi5 and Amebio. LinkedIn comes in at no. 11, at 6% of MySpace’s value.
Valuation Ranges
The real-world revenue numbers being reported for the big networks supports this approach to valuation and shows a direct tie between monetization efforts and where a network’s users are. MySpace is estimated to have generated $755 million in revenue over the last year. The (now) larger Facebook, with a far higher percentage of users in less lucrative markets, will generate just $255 million this year:
EMarketer estimates that MySpace will post $755 million in revenue in the fiscal year ending June 30. MySpace would not comment on the estimate. About a third of the revenue is expected to come from the Google ad pact. For the year, Facebook is estimated to earn $265 million in ad revenue.
Since we have three recent data points valuing social networks (Facebook at $15 billion, Bebo at $850 million, LinkedIn at $1 billion), we can start to apply valuation ranges based on the model. Facebook’s 10.2 million value points and $15 billion valuation puts a $1,467 value on each value point. LinkedIn is valued very similarly, at $1,325 per value point. Bebo, with lots of users in the rich UK market, appears to have been undervalued at only $241 per value point.
Based on these three publicly available data points we’ve created value ranges for each of the top 25 worldwide social networks. There is a very wide disparity (MySpace, for example, is worth between $3.3 billion and $20 billion, based on which comparable you look at). But it does yield very interesting data. For example, If Facebook and LinkedIn were valued similarly to Bebo, they would be worth just $2.5 billion and $182 million, respectively, far less than what their investors recently paid for a piece of them.
Interestingly, the recent sale of Polish social network Nasza-klasa for $92 million appears to be right in sync with Bebo’s price. The model estimates its value at $91 million based on Bebo’s valuation metrics.
There are some big flaws with the model and analysis in its current state. First, LinkedIn may be in a different class of network, given that all of its users are business focused (no super-poking going on there). As a result, it may be able to monetize users far better than its competitors, no matter what geographic market is being looked at. Still, we’ve decided to leave it in as a data point, with that caveat.
The model itself needs more data. The user numbers are based on April Comscore. We will shortly revise it with the May numbers, although the absolute rankings probably won’t change. More importantly, some big markets are not included yet. The Chinese Internet advertising market, for example, is estimated to be $2 billion in 2008, yet they are not included (mostly because I can’t find data on user numbers for the networks). Also, the Philippines isn’t broken out separately, again due to data availability issues (although the total Internet advertising market in the Philippines is just $3 million this year, so it won’t affect the rankings materially even though Friendster is so strong there). Finally, Russia is currently grouped with “the rest of Europe,” and needs to be separately broken out – it has a large and growing online advertising market and lots of users, so that update may affect the mid-level network rankings.
The advertising spend model is just an estimate and from a single source. I’m less concerned with this data since it doesn’t matter to the model if the estimates are absolutely correct. If the estimates are wrong by different rates in different countries, however, the model will break. If we find better relative data between countries, we’ll update the model with that data. But for now, the PriceWaterhouseCoopers data seems to be pretty good.
Finally, this model doesn’t take into account execution at the company level. Two very similar networks may monetize vastly differently based on methods of advertising and even the brute effort and passion of the employees. This model obviously doesn’t take that into account.
I also note Andrew Chen’s analysis last week which takes a similar approach to this using Google Trends data instead of Comscore. The Google data isn’t granular enough to really dig in to relative values, however, and he was lacking current and deep data on average Internet spend. Still, I agree with his methodology.
As I wrote at the very end of this post, you have to consider the current monetization value of users when comparing social networks. Raw user numbers are pointless without it.
“I believe an effective way to value a particular user is based on the average Internet advertising spend per person in the country they live in.”
You are making a big assumption here though, the one that all those social networks will be able to become profitable AND sustainable but solely relying on advertising dollars.
One thing you don’t seem to take into consideration is detailed demographics data. Linkedin obviously has a much more desirable demographic than, for example, netlog, which is used more by teens.
You oversimplify this by just looking at average internet spend per person per country.
wesley – I partially disagree. I think LinkedIn has very valuable users, but the demographic data gathered on those particular users isn’t that different from the other networks. Knowing what sports teams and movies someone likes may be far more valuable than knowing what company they worked for, for example.
This is pretty much an estimation.
But the real value is when someone is willing to fork out the cash to buy Facebook.
FYI i think Linkedin is under valued
There may be some errors and oversimplification in this model, but I have no doubt that this interesting study will stir up some useful discussion on the true value of social networking sites.
@Mike – Very nice and well crafted article!
This definitely gives us a quick recap on how Social Networks have evolved throughout the years and the continuous support that VCs and the marketplace are giving them.
Though with such high valuations, I still believe majority of us / the general public is kept in the dark on how these Social Networks can hugely monetize and deliver the ROI desired in return for these hefty valuations. Perhaps you could also do a separate blog post on that too and provide readers a much needed perspective on how we can make sense of these valuations
Nonetheless, brilliant article!
Warmest,
Darren Lee
http://www.adexcel.com
I have gone through these valuation recently, while i was preparing the business plan for my Start up. What i learned is, that at the end of the day, the value of a Social Network depends on how much engaged and active are registered Members on it, and for how long they will be there! According to these facts, you get an estimation when you are ready to sell your company, or get funded. It’s just a matter of how much money a company is willing to pay to buy a share of your company, and the potential that your company has. that’s why there are so huge gaps between valuations of SN, and this is how all above valuations can be explained( Facebook-linked in etc)
Mike, this is very interesting and the data supports your calculations well. A few things that are not touch upon is the opportunity for each on of these and how this will affect their value. Right after MySpace was bought, the sale evaluation sky rocketed for all social networking sites. We will see this again once Facebook or LinkedIn is acquired. I also think that we need to look at the potential market each one of these can get and their ability to monetize it well. Can LinkedIn overtake Xing in Europe? Maybe and maybe not. So, their potential revenue from the EU should be taken under consideration here. Also, we do not know the actual numbers of ACTIVE users here. Every network has many more users than their active users. Blogtronix charges based on active users, so believe me this can make a big difference here. On top, what is an active user? A user that has logged once to check his messages, RSS feeds aggregation user, or a user that has logged into a site 3-5 times and has spend x-time on the site.
Can LinkedIn monetize their business clients in many other ways other than the $20-200 per user for headhunters? Would a real world company trust LinkedIn with their private data and allow users to collaborate on it?! I don’t know.
I did write a blog about some of this as well here: http://blog.blo...gtronix.com/378
I do know that I only log in to LinkedIn couple of times a month now and I am on facebook a lot more, since there is some content there as well as my friends and not just plain profiles. I am not sure how many social networks can one person be part of, but for sure, most employees will be part of their corporate social network soon and may not have the time to socialize much outside as the Enterprise Social Networks takes over and replaces (to some degree) LinkedIn and Facebook.
johnyzar -
If I really wanted to sink a week into it, I could also model in page views per user and total minutes on the site to dig deeper. But I think this model shows at a high level that simply having tens of millions of users doesn’t equal multi-billion dollar valuations. You have to be able to monetize those users, and to do that they have to be in a market that has active advertisers. Most of these networks are pretty good at getting users to engage with them, that’s how they got so big in the first place. But overall I agree with your point.
I think you proved your point, and the deeper analysis you mention would be very interesting to read, Mike. I think that additional revenue sources and the ability to specify and narrowly target demographics could affect valuation as well. I’m on XING, LinkedIn, MySpace, and Facebook, and Facebook by far gets the most activity from me. It also gets the most of my advertising dollars – I find it the easiest network to target advertising on to my specific area and demographics. On LinkedIn or even MySpace there is no way to target your ads, to someone that’s in your area and likes craft beer, for example, whereas Facebook makes it very simple for a small, local advertiser like me to do so.
The problem with this advertising-based valuation is that investments are made in companies not only for this (and often not mainly for this), but for strategic value for future use. You cannot model this or predict/calculate a “correct” value, regardless of which benchmark(s) you use.
Valuation is an art –and often based on things not known to you or other public entities (that is, the *strategic* part).
Therefore, all such models are worth what they are printed on (in your case, shown on).
Interesting way to look at this!
Did you also put the value ranges for the ‘price’ of the networks online somewhere?
Mike,
We know that this is an overview (a great one), I (as well as johnyzar) just wanted to point out for the rest of the people out there that this is a very complex world.
I think your analysis makes sense if you are looking at it from the perpective of a company looking to buy “eyeballs” (like a Google, who can monetize with ads)… but from a pure valuation perspective, you are missing some key elements like
1. Dead Profiles – The biggest “dirty little secret” noone talks about is how many of these sites have dead profiles, where people never login again. If you look at Alexa (etc) you can predict how active the site really is. I think most of these sites have a serious retention problem.. especially Facebook (once kids graduate and become adults)
2. User “willingness” to Pay – this to me is the biggest factor you overlook to some degree. Its great to have millions of users, but if they are not willing to pay for premium features, then it will be hard to monetize. Even the biggest networks make very little money on ads… (because users are there to socialize not click on ads (e.g. shop). To me this is the key to a valuation. If you can’t make money? What’s the point?
3. And finally, the other factor to Valuation is “who will buy it?”… I don’t think any of these companies can or want to go public.. so who is the buyer? if there is no buyer, then the valuation is meaningless…. I think sites with critical brand recognition like LinkedIn in the pro-market, will have a longer list of buyers…
Good article, keep up the analysis…. I feel these sites are all over valued on basic principles, and the only way they can justify, it to start making some money off their users.
M.A, well studied article.
Do you ever sleep??
Michael, this is a general approach, I don’t see it accurate and I don’t think you wanted to be that way. It has just a general purpose for users to have a clue on social networking and its values.
To make an analysis and to get an acceptable value it would take a bigger amount of information and not only data form traffic analysis sites.
that is what I think.
But overall it is an interesting approach regarding the sites’ value depending on previous sales.
Xing.com is missing. Over 5 million accounts.
Rich, a couple of comments back:
- the user data is from comscore, so dead user profiles don’t come into play. These are simply the number of people who hit the website every month, an indirect way of getting to “users.”
- on your no. 2, i agree. That’s why LinkedIn may be in a different class and should be compared separately – their users may pay for various services that the other networks couldn’t get. Also, LI gets to tap into the very lucrative job listings market.
- on your no. 3, I think Myspace and facebook are both potentially stand alone public companies. Perhaps even LI. WRT the rest of them, I agree with you.
Andy – to really get into valuation, you need to see internal metrics, paricularly revenue growth. Without access to that, the best we can do is estimate potential based on the financial value of users. This also separates sites like Orkut and Friendster, which have huge growth in markets where they can’t currently make any money, from the others.
Great post Michael, will be reusing this data in http://thoughttrail.com/pitch/
http://thoughtt...ail.com/mockup/ <– Instopix mockup. VoiceRaiser + ListenOut not shown.
http://thoughttrail.com/old/ <– Layered Social Network (with ambient visual awareness)
Was on http://uk.techc...at-as-you-type/ recently
StudiVZ, the German Facebook clone, actually consists of three sites in order to separate demographics:
http://www.studivz.net (college and university students), http://www.schuelervz.net (high school), http://www.meinvz.net (old farts), see
http://www.stud...net/l/impressum .
StudiVZ and SchuelerVZ have the same size according to Google trends
http://trends.g...=all&sort=0
So, if you double the points for StudiVZ they should be #4 in your ranking.
I agree
Best article I’ve ever read on TechCrunch. Great analysis, good work Mike.
[resent to reduce # of links and get out of moderation]
StudiVZ, the German Facebook clone, actually consists of three sites in order to separate demographics:
studivz. net (college and university students), schuelervz. net (high school), meinvz. net (old farts), see http://www.stud...net/l/impressum .
StudiVZ and SchuelerVZ have the same size according to Google trends
http://trends.g...=all&sort=0
So, if you double the points for StudiVZ they should be #4 in your ranking.
Really, instad of making up a model to fill up blog space, you could just have asked what a VC looks at before they put oa figure on a site -
Growth (current and potential)
Uniqueness of technology and business model
Management experience and direction
Site strategy
Monetization outside of advertising
Engagement of user
User demographics
Cap table of the company behind the social network
Competition within the local market place
Plus the all important “community factor” – are using going to bolt to the next big thing.
Just a final note, Badoo.com on your list doesn’t serve advertising.
Great piece of analysis. Despite all the assumptions, your model just ‘makes sense.’ Perhaps you could add some of this data to CrunchBase? It would be pretty interesting to see how any site’s demographics break down and then the points/valuations against each site.
Very well done sir!
Mike,
Do you see a lots of M&A going here now or do you think that LinkedIn and the like can go IPO. You are suggesting above that some of these can be “stand alone” companies but what about their investors. Many media brands are sill behind and are trying to figure out the space as well as technology companies like Nokia are now buying SN sites (Plazes.) Would this raise the SN values?
“I believe an effective way to value a particular user is based on the average Internet advertising spend per person in the country they live in.”
It’s spent. And I believe you spun this off on my saying that MySpace is still worth way more than Facebook because most of the users are American.
http://siteanal....com/?metric=uv
Facebook is still trailing MySpace badly.
The REAL value of a social network is what it can bring back in revenue, point blank.
Whether that’s making your users fill out surveys and selling the data to Toyota so they can find out what Prius users REALLY want or whether it’s selling the software as a script or platform, or whether it’s selling old fashioned internet targeted advertising, increasingly being blocked by Firefox and adblocker plus
addons.mozilla.org/en-US/firefox/addon/1865
The other avenue of profitability is selling the property off wholesale as a status symbol for a big website or newspaper which Bebo and MySpace did.
So to measure that, you would have to measure news leaks of said large companies expressing interest in the social network, and other data that would suggest that the website would eventually be sold off due to interest.
And that pretty much sums it up. Because apart from raw money income, there is no value in a social network. Users are like software, they only become valuable when people are ready to pay to use them as a service.
StudiVZ, the German Facebook clone, actually consists of three sites in order to separate demographics:
studivz. net (college and university students), schuelervz. net (high school), meinvz. net (old farts), see http://www.stud...net/l/impressum .
StudiVZ and SchuelerVZ have the same size according to Google trends
http://trends.g...=all&sort=0
So, if you double the points for StudiVZ they should be #4 in your ranking.
Michael,
LinkedIn has an inherantly more valuable audience because of the demographic. For an advertiser, reaching the Linked audience is worth far more than Netlog.
Michael,
.
Great post.
Beter than the yahoo ramblings that have been going on recently
Dhaval – well, this was more fun for me to write than my recent yahoo posts, too. but more news is coming on them, maybe even today. big news.
I think Mike’s model represents a really good start, and has already thrown up an interesting result by breaking the direct link between valuation and number of users.
Hopefully, on successive iterations of the model, more precision can be introduced. For example, one issue that needs to be addressed (as pointed out in previous comments) is the concept of ‘user quality’. Just because a user is from a ‘high value’ country doesn’t make them automatically high value (and I would further argue that law of big numbers doesn’t kick-in here either – in the sense that everyone knows that the kiddies are on MySpace, and LinkedIn has mostly professionals).
In my view the million (billion?) dollar question is: ‘is a trend-following, parent-nagging, must-have-this-consumer-item-now little kiddie worth more or less than a been-there-done-that-who-cares? high net worth adult”
My hunch is the former is worth more, but it’s just a hunch
If you own a social network, a really good way to measure your buyout capacity is to grep through the employees that either currently work or have worked at Yahoo, AOL, Microsoft, and other large companies.
I have quite a few current and former employees on my network statistically speaking.
The more of the people at those companies you can get to sign up, the more you have a chance of selling out, because they will suggest in a bottom up way to management how they like their profile on X social network and wouldn’t it be cool if we owned it.
Assuming your social network allows users to enter work history. Mine does. I think most of them do now.
I will dump my MySpace (crappy place anyway) account and sign up for Facebook. And LinkedIn. And Bebo and Tagged and Friendster. How am I supposed to manage all that stuff, I need some time for work and all…
Nice example of web 2.0 bubble valuation methodology. I know it may be old fashioned, but some us in the real world like to focus on actual cash generation.
Would ROI be a better variable to study profitable and niche markets than advertising spend.
Just asking?
Rajeev Vashisht
http://tekno-wo...ld.blogspot.com
What happened to AlwaysOn
I don’t see it on the list
Mike – Great post and good job of recognizing that Linkedin’s model is not solely advertising. I have paid for premium services for several months.
Kind of surprising that Friendster is still valued at over $100 million as it has fallen off the map for most of us.
Where does Slide.com fit into this based on their most recent valuation?
Nice article Micheal.
I agree with the analysis for the users in high paying market.
In India, Orkut is NO.1 Social Networking site. Many have just started with facebook but they are just for sake of having a social profile there. However I doubt any of the Social Networks are getting revenues here.
I don’t notice your model takes ‘trajectory’ into account.
Nobody buys a social network just because of where it is today. The price is likely to be heavily influenced by where the network is going and what it can become.
@32,
That’s the concern with social networking. There is no real money value to them until you get that large corp interest.
What quite a few of them do here in LA, is spam the living crap out of the craigslist.org personals then collect cash on sign up.
I interviewed at such a company a few weeks ago not knowing where I was going before I went.
This is pretty much equivalent to MySpace and what they did with responsebase.
As far as creating a social network hoping you will sell out or make money with advertising, that’s wishful thinking.
The software can be really valuable to small communities that have existing bulletin boards like phpBB and vBulletin so that is where I chose to make my monetization stand. Kick apps that is run by one of the Tech Crunch members also does the same, except he has huge contacts for Miller time contracts. He has a sales force.
Whether you sell 10 really expensive hamburgers for $100,000 a piece or 1,000,000 hamburgers at $1 a piece you still have the same amount of $$$ so it’s all good to me. Besides, 1M people crying out for support is a larger client base.
My last comment was actually @36
Very intelligent analysis Mike. But the analysis also need to take in the factor of developing countries. Like orkut is superb in india which is a developing country. After 2-3 years the advertising per person will be much more than it\’s right now. Orkut is all set to dominate the indian market for at least next few years now. So, orkut should be valued more than you have, based on the potential. My 2 cents.
no matter how you spin it, FaceBook is not worth $15B
if you think it’s worth 15B, you must be living in the bubble of web1.0 valuations – or some other candy land
@Steve – That’s why I mention in my earlier comment that more details should be shared to the general public about how these parties are looking into monetizing Social Networks and justify the ROI desired for the high valuations.
A lot of people are still kept in the dark because only high level VCs and a relatively small group of people will probably know the answer. I personally feel that these discreet data should be shared public to increase confidence from the general public ( and you Steve).
And I don’t think it’s a bubble. I think these people are investing ahead of the curve and therefore giving Social Networks such a huge valuation. Hence, they are not investing in the current ROI prospect but really the “potential ROI” in the future of Social Networks. It’s a huge gamble only if we know very little but some VCs should know more than we do.
Invest in the future of Web 2.0?
Best regards,
Darren Lee
http://www.adexcel.com
technodiary – i agree that the growth estimates should be considered in the model, and they aren’t now. I think it’s pretty clear that the big networks want in to those markets right now even though the money per user isn’t there yet for exactly that reason. but the main reason for this post isn’t to suggest those markets aren’t important, but rather to present a new way of ranking the value of social networks with something other than raw user numbers.
Mike, I think your article is spot on. There should definitely be a cross-reference between your model and the current pageviews/uniques per month model to accurately assess the value of these social networks. It is very difficult, like you said, to valuate without internal reporting data. The one thing we can do, as outsiders looking in, is use the public traffic data and known demographic information. In addition, you cannot dig too deep into any data provided externally because you cannot verify the integrity and validity of that data (see Comscore vs Compete).
What I find hilarious/interesting is that this (excellent) analysis is being generated *not* by a market analysis firm (hello, NPD?) but by a blogger.
Although it’s tangential to most of our discussions here, it strikes me that there may be a big disintermediation occurring with the market analysis firms.
I know, for those of you who live/die by Compete (and Alexa), this seems obvious, but most big companies and PE groups (the lifeblood of analysts) are still paying for research. Interesting!
Michael: consider open sourcing the PivotTable and producing a handful of basic chart slides that your readers can incorporate into their presentations under a CC license; it’s great exposure for you and a useful tool for others.
-G
I like the thinking, and although simplistic agree that it gives an important new dimension to valuation discussions.
I have to agree with Cem though – where is Xing.com? Not only is it a sizeable network in Europe, it is publicly traded and gives you a fourth valuation point.
It is currently trading at €35 giving a market cap of €181m
http://markets....?s=O1BX.C%3AGER