Putting a value on private companies is hard enough for insiders and venture capitalists who have full access to the company’s financial statements. When outsiders try to do it, even well-informed ones, it is nothing more than a guessing game. But it is nonetheless perhaps one of Silicon Valley’s favorite parlor activities.

Today, Henry Blodget & Co. at Silicon Alley Insider try to peg valuations on 25 private Web companies. Facebook is at the top of the list, but it is valued at $9 billion instead of the $15 billion that Microsoft’s investment put on the company. Why? Because everyone knows that the $15 billion is too high, so SAI decided to apply a 25X multiple on Facebook’s 2008 revenue forecast of $350 million. Does that make its valuation correct? Probably not. But in the absence of any true market pricing, anyone can go ahead and make a guess.

The same goes for any of the valuations on the SIA 25 list, which puts Wikipedia’s worth at $7 billion, Craigslist’s at $5 billion, Mozilla’s at $4 billion, LinkedIn’s at $1.3 billion, Ning’s at $560 million, RockYou’s at $325 million, and Spot Runner’s at $250 million. Note that three of the top five (Wikipedia, Craigslist, Mozilla) are essentially not-for-profits sitting on very valuable assets. The valuations for those three are based on what they would be worth if they were run differently with an eye towards maximizing revenues—which, of course, could impact how consumers interact with them, which in turn would impact their valuations.

Another 25 startups make up the contenders list, which includes Federated Media ($245 million), Yelp ($225 million), Meebo ($220 million), Mahalo ($150 million), Digg ($125 million), Etsy ($115 million), Powerset ($80 million), and Twitter ($75 million). A full list that changes dynamically every 20 minutes, based on changes in the Nasdaq, can be found here (although, exactly how the valuations are linked to the Nasdaq is never clearly explained)

Some of these valuations have more merit than others. Some have none whatsoever. For instance, SAI gets at its $125 million valuation for Digg by “splitting the difference” between a $200 million buyout rumor we reported and the $60-to-$80 million that Kara Swisher came up with. Splitting the difference between two rumors is not exactly the height of financial analysis.

But what are you gonna do? At least SAI acknowledges that the list is an imperfect work in progress. Don’t get too caught up in the actual numbers. It is more useful really as a starting point to think about relative valuation between different startups. Is Meebo really worth three times as much as Twitter? Is Ning worth as much as Slide? Let the parlor game begin.

Encyclopedia Britannica often is used in case studies as a definitive example of how new technology can disrupt a business. Everything was great for the nearly 250 year old privately held company until the Internet came around and a Category Five hurricaned on their parade. According to Comscore, for every page viewed on Brittanica.com, 184 pages are viewed on Wikipedia (3.8 billion v. 21 million pave views per month). In short, they are a classic example of the Innovator’s Dilemma (see also the Music Industry).

You can purchase the 32 volume Britannica, which has 65,000 articles and 44 million words, for just $1,400. Or you can access it on the web for $70 per year.

And now, you can get access to the online version for free through a new program called Britannica Webshare – provided that you are a “web publisher.” The definition of a web publisher is rather squishy: “This program is intended for people who publish with some regularity on the Internet, be they bloggers, webmasters, or writers. We reserve the right to deny participation to anyone who in our judgment doesn’t qualify.” Basically, you sign up, tell them about your site URL and a description, and they review it and decide if you’ll get in. I wonder if Facebook, MySpace and Twitter users are eligible? They all certainly “publish with some regularity on the Internet.”

Once you’re in, you get to link to the full version of articles – people clicking the link can read that article but they can’t go and read other parts of the Britannica site. Participants can also embed widgets like the following:

Half Pregnant

Britannica is doing a lot of things right – a relatively small staff of a hundred or so editors manages 4,000 unpaid (I believe) contributors who are recognized experts in their field. But, like the music labels, they still somehow feel as though people should pay to consume their content. And that means search engines can’t index their content. And that means they don’t exist.

Instead of going free and opening up to all, they’re using the new program to simply price discriminate. Give people who may link to the site free access. Everyone else has to pay. So in effect they’re aiming to be half pregnant – they want the benefits of web linking but don’t want to give up the subscription fees from the fools who continue to pay them.

As an outsider, Britannica’s future is clear. Eventually, and if they don’t go out of business first, they’ll be forced to make all their content freely available on the Internet, and will probably create a wiki-like format that allows user editing. Their differentiating factor from Wikipedia will be that they have experts guiding articles, so they’ll have a claim to be more authoritative. This is, by the way, the business model of Citizendium, created by Wikipedia co-founder Larry Sanger in 2006.

The sooner they do that the more likely they’ll be around for the long term. Perhaps they can even continue to sell those 32 volume sets to a few libraries. But it’s hard to give up that online subscription revenue. When this fails, they’ll try something else.

Dutch filmmaker IJsbrand van Veelen stirred a lot of controversy last week at the Next Web conference when he premiered the documentary above, The Truth About Wikipedia. It has now been posted to YouTube and is worth watching when you have a spare 45 minutes. The film pits Andrew Keen, the disapproving author of The Culture of the Amateur, and Bob McHenry, former editor-in-chief of the Encyclopedia Britannica, against Wikipedia co-founders Larry Sanger, Jimmy Wales, and Web 2.0 guru Tim O’Reilly, among others. The film is masterfully made and shows many points of view, but it ends up being more than anything else a vehicle for Keen to put forth his diatribes against Wikipedia. You definitely get the sense that he wins the argument in the movie. And, in fact, when I asked van Veelen afterwards on stage who he personally agreed with the most (I was the conference MC), he admitted it was Keen. This siding with the enemy, as it were, actually makes the documentary more thought-provoking. People in the audience were seething, and one man came prepared with a speech denouncing the filmmaker.

In the film, Keen actually argues that we need gatekeepers for the truth, and those gatekeepers should be experts. Of course, he misses the point that the relatively small handful of people who do most of the writing and editing on Wikipedia may very well be experts in their topic areas, or become experts by writing and researching Wikipedia articles. That is not to say that controversies do not arise all the time about factual inaccuracies, edit wars, and companies trying to conduct PR campaigns by changing their Wikipedia entries. But the film also misses the point that Wikipedia is very much a market of ideas. Like any market, information at any given point in time can be wrong, but in the end it turns out to be right more often than not. Whether you agree with Keen or with the Wikipedians depends on your definition of truth. Keen is an absolutist. There is Truth, and everything else is fiction. Experts are the guardians of that truth. But the truth is that Truth itself is always evolving, even the experts’ notion of it.

(via The Next Web).

And for those of you with even more time on your hands, here is van Veelen’s 50-minute documentary from last year on Google:

Right on schedule: Google is releasing their April Fools jokes onto us as the calendars hit April 1 on the east coast (here’s last year’s efforts). Google Australia got a head start earlier today with the very funny Future Search. Gmail’s effort this year isn’t in my opinion as funny.

Gmail Custom Time lets users send emails with a custom date in the past, putting it in the recipients inbox at the old date:

How do I use it?

Just click “Set custom time” from the Compose view. Any email you send to the past appears in the proper chronological order in your recipient’s inbox. You can opt for it to show up read or unread by selecting the appropriate option.

Is there a limit to how far back I can send email?

Yes. You’ll only be able to send email back until April 1, 2004, the day we launched Gmail. If we were to let you send an email from Gmail before Gmail existed, well, that would be like hanging out with your parents before you were born — crazy talk.

Funny? You decide. The team did better last year in my opinion.

But the joke has started a minor Wikipedia war, which makes it more interesting. In describing the technology Google says “Gmail utilizes an e-flux capacitor to resolve issues of causality (see Grandfather Paradox)” and links to the Grandfather Paradox on Wikipedia. Someone changed the words “time travel” to “gmail” in a revision, along with the comment “Gmail starts a wiki-war by linking directly to this article on April 1st…”

The change was quickly put down by the Wikipedia police, of course. And then changed back. And then reversed. You can watch the drama in real time on the article’s revision history page (or feel free to participate with your own flourishes).

I wonder who’ll get tired first.

The ten millionth article has been written on Wikipedia – a Hungarian biography of of 16th century painter Nicholas Hilliard (English version here).

Those ten million articles have been written across 250 different languages, Wikipedia says. English is still the most popular language on Wikipedia, with 2.3 million articles (they reached 2 million English articles in September 2007). After English, the next most popular languages are German, French, Polish, Japanese, Italian, Dutch, Portuguese, Spanish, and Swedish.

See here for an article count by language.

The Wikimedia Foundation, the non-profit organization which operates Wikipedia, announced a $3 million donation from The Alfred P. Sloan Foundation today. The donation will be paid ratably over three years.

Last year the foundation had total income of $2.7 million and expenses of about $2.1 million (see financials here). This year revenue should be significantly higher. In addition to this donation, Wikipedia has engaged in significant fundraising efforts over the last year. The foundation has 15 employees and hopes to grow to 25 by 2010.

The foundation has also been under close scrutiny lately around potential conflicts with large donors. at some point, it seems, they should seriously consider proposals to become financially independent via advertising on the site. Even very minor advertising would provide a huge windfall. Nearly a quarter of a billion people visit Wikipedia every month (fifth largest on the Internet), generating nearly 4 billion page views (Comscore worldwide, February 2008).

Wikimedia Foundation posted their audited 2007 financial statements (I’ve embedded the document below) last week. Their fiscal year actually ends June 30, so these are already almost eight months old, but they reveal some interesting information about the entity that controls Wikipedia nonetheless.

Generally Wikimedia publishes these five months or so after the end of the year; this year they took eight months. Total donations and other income increased from $1.5 million in 2006 to $2.7 million (the period covered is prior to their recent fundraising effort). Donations of Google stock actually made up a material portion of contributions – 681 shares were donated in fiscal 2007 (worth about $315,000 based on the current stock price).

Travel expenses jumped significantly from $140k to $264k. Given that this period included time when Jimmy Wales was pitching Wikia Search around the world, some conspiracy theorists are speculating that travel expenses related to the for-profit Wikia (which Wales founded) were being reimbursed by Wikimedia Foundation. Wales, however, told me via email that the foundation does not reimburse him for any travel expenses at all, even for pure Wikipedia events, in order to remove any doubt about mixing funds between the entities. “I fund all that myself, out of my own pocket personally,” he said.

The financial statements also note, though, that Wikia and Wikipedia do share some infrastructure costs, assets, employees and expenses:

The Organization shares hosting and bandwidth costs with Wikia, Inc., a for-profit company founded by the same founder as Wikimedia Foundation, Inc. Included in accounts receivable at June 30, 2007 is $6,000 due from Wikia, Inc. for these costs. The Organization received some donated office space from Wikia Inc. during the year ended June 30, 2006 valued at $6,000. No donation of the office space occurred in 2007.

Through June 30, 2007, two members of the Organization’s board of directors also serve as employees, officers, or directors of Wikia, Inc.

Financial statements for 2006 are here.

Wikimedia Foundation, Inc 2007 Financial Statement