Friday, October 06, 2006

The Value of Social Media Sites

Knowledge @ Wharton has been looking at the value of services like MySpace..

Less than three years after emerging from nowhere, the hot social networking website MySpace is on pace to be worth a whopping $15 billion in just three more years. Or is it?

Is the much smaller Facebook, run by a 22-year-old, really worth the $900 million or more Yahoo is reported to have offered for it? Maybe. Or maybe this is Dot-Com Bubble, Part II, with MySpace, Facebook, YouTube and the other new Internet phenoms destined for oblivion when the fad fades.

"What makes this hard is that these companies seem to be so many years away from the kind of earnings that the valuation numbers are forecasting for them," says Andrew Metrick, finance professor at Wharton. The $15 billion MySpace figure "would imply that a lot more people will be on MySpace than are currently on it."

Perhaps the problem is that they are looking at an old fashioned marketing and advertising models.

Thinking more about the nexus of relationships that form round bloggers would be a better model. Think in terms of society rather than customers.