With the announcement of Microsoft's 240 million investment in Facebook (and the consequent valuation of Facebook at 15 billion) has seen a lot of bickering over the past few days. Few people are taking the valuation at Face Value, and here's why.
Firstly, a quick chat with any media buyer will deliver the anecdotal evidence. Even when ads targeted towards, young, college educated people are placed on Facebook, no one seems to be interested. Companies have been paying massive amounts of money to get their messages on to the site, and with Microsoft's finger in the pie, and a fresh spot in the Big 3 (Microsoft, Google) it's not hard to see why. The only problem is that despite having one of the largest and committed audiences, Facebook is ill equipped to provide advertisers with what they need. Namely, mouse clicks.
Click through rates are astonishingly low at 0.4% (Myspace is 0.10%), which practically means that for everytime million views, only 400 people actually click on the ad. What does this mean for advertisers?
Facebook is a complete waste of time.
But here's the most interesting part, as it's number of subscribers continues to grow the companies value will only go up, despite the fact that in real terms, it has no practical way of creating revenue. With Microsoft losing money every day of it's contract there is little hope for a renewal. So where will this leave Facebook?
Out in the woods, in desperate need of a new way to make money of it's audience. It seems that in terms of social networking sites, the people are there and they're listening, but only to each other.
