kottke.org posts about Facebook
My inbox is divided about the valuation of Facebook calculated using Burger King Whopper Sacrifice promotion (unfriend 10 people to get a Whopper). The majority say that even if you prevented people from refriending those they unfriended for a Whopper, a value of 12 cents for each friend link is too high and that most links are worth much less than that. That is, Facebook is awash in junk friendships of little value.
A smaller contingent is arguing that Burger King would have to pay much more to break some friendships and that Facebook’s valuation is therefore higher than the straight calculation indicates. For instance, getting Johnny Shoegazer to unfriend that girl he likes might take a considerable sum of money. I agree that Facebook is worth more than $1.8 billion in Whoppers but not because some individual links are more valuable than others…it’s about groups and networks of links. You might be able to get someone to part with 10 “junk” friends for $2.40 but could you pay them $22 more to essentially shut down their Facebook account for good? I don’t think so. It’s going to cost much more than that…and for some intense users of the site, the “buyout” amount might be surprisingly high. (I’d probably accept $24 to close my Facebook account. But I pay nothing to use Twitter and ~$25 a year for Flickr and it might take several hundred or even thousands of dollars to entice me to permanently close either of those accounts…I get so much value from them.)
The reason for this seems like it might have something to do with Metcalfe’s Law:
Metcalfe’s law states that the value of a telecommunications network is proportional to the square of the number of connected users of the system (n^2). […] Metcalfe’s law characterizes many of the network effects of communication technologies and networks such as the Internet, social networking, and the World Wide Web. It is related to the fact that the number of unique connections in a network of a number of nodes (n) can be expressed mathematically as the triangular number n(n - 1)/2, which is proportional to n^2 asymptotically.
Or for our economic purposes, the network effect:
In economics and business, a network effect (also called network externality) is the effect that one user of a good or service has on the value of that product to other users. The classic example is the telephone. The more people own telephones, the more valuable the telephone is to each owner. This creates a positive externality because a user may purchase their phone without intending to create value for other users, but does so in any case.
As Facebook accumulates users and friendship links, the service becomes more and more valuable for each user. In Whoppernomics terms, Facebook may well be worth the $15 billion that the Microsoft deal suggested, but there are obviously problems for Facebook in thinking about their value in this way. How do they extract that value from their users? Getting a user to accept a $500 buyout for their Facebook account is different than Facebook asking that user to pay $500 to keep using their account even though the monetary value of the account is the same in either case. What Facebook is betting on is that each user will put up with hundreds of dollars worth of distractions (in the form of advertising and promotions) from their primary goal on the site (i.e. connecting with friends). Also, as Friendster and MySpace and every other social networking site has learned, membership in these services is not exclusive and users may eventually find more value in some other network with (temporarily) less distraction.
Again, assuming that we’re not taking this too seriously.
Burger King recently introduced a Facebook app called Whopper Sacrifice that allows users to delete ten of their friends in exchange for a Whopper sandwich. Watch the app in action.
What BK has unwittingly done here is provide a way to determine the valuation of Facebook. Let’s assume that the majority of Facebook’s value comes from the connections between their users. From Facebook’s statistics page, we learn that the site has 150 million users and the average user has 100 friends. Each friendship is requires the assent of both friends so really each user can, on average, only end half of their friendships. The price of a Whopper is approximately $2.40. That means that each user’s friendships is worth around 5 Whoppers, or $12. Do the math and:
$12/user X 150M users = $1.8 billion valuation for Facebook
That’s considerably less than the $15 billion valuation assigned to Facebook when Microsoft invested in the company in October 2007 and the lower valuations being tossed about in recent months.
P.S. Other assumptions for the sake of argument: every user is eligible for the Whopper promotion (it’s actually only valid in the US), you can sell all of your friends for multiple burgers (actually limit one per customer), and the “average user has 100 friends” means that Facebook users average 100 friends apiece (no idea what the reality is…if they’re using the median instead of the mean then that number could be higher or lower). Oh, and it’s also assumed that no one should take this too seriously.
Update: I’m getting some email saying that Facebook friendships require the assent of both parties. Is that the way it works for the BK thing? If I am friends with Mary and I unfriend her through the Whopper Sacrifice app, is she then unable to unfriend me to help get her burger? If so, then the $3.6 billion valuation drops to $1.8 billion because each unfriending event takes care of 2 friend connections, not just one. Anyone? Note: we are already taking this too seriously!
Update: Ok, it looks like unfriending on Facebook takes out two friendship connections, not just one. So that drops each user’s share to $12 and the valuation to $1.8 billion. D. Final answer, Regis. (thx, everyone)
kottke.org now has a Facebook page. I don’t know what this is good for exactly, but there it is. Become a fan! (kottke.org also has a Twitter account if you’d like to read the site that way.)
Some Facebook employee wrote a rebuttal on Facebook to Facebook is the new AOL:
my former PayPal colleague Yishan Wong, now an ass-kicking, name-taking engineer at Facebook, lays the “Walled Garden” rebuttal smackdown on Kottke, Arrington, et al. you go, Yishan… you just go.
And then. Oh, the irony:
Doh! guess Yishan’s post is only visible to his facebook friends… okay, so maybe semi-permeable garden, perhaps.
Mmmm, invisible smackdown.
There’s a big kerfuffle (how many points do I get for that?) over Hasbro, makers of Scrabble, suing Rajat and Jayant Agarwalla over their popular Facebook application, Scrabulous.
Lesley Stahl of ‘60 Minutes’ did a big piece last night on Facebook and its CEO Mark Zuckerberg. (It followed Anderson Cooper’s horrifying story on rape in Congo and the spillover of Rwandan terror into the country; unreal.)
The worst part (about 3 minutes in, on the online video) came when Stahl said Facebook was the new Google. “You seem to be replacing [Google co-founders] Larry and Sergey as the people out here who everyone’s talking about,” she said. Zuckerberg didn’t say anything. “You’re just staring at me,” she said, almost immediately. “Is that a question?” he asked her. Then: “We were warned he could be awkward,” she said in a voice-over. Actually no, Lesley, that was a savvy response to a terrible, no-win question.
A yet-to-be-released Facebook magazine/book hybrid “will be bought by Facebook experts and novices alike, as it covers everything from a step by step guide to getting started through to smart security tips.” Presumably, the bookazine will include tips for responding to zombie pokes of your friend’s friends’ favorite nonprofit topless $1 gift wall petition.
The effect of ditching my Facebook account last week didn’t register as much as it may have for some (sorry about that, my nine Facebook friends with whom I never otherwise communicate), but it’s been interesting to see the current backlash manifest itself. Deleting your Facebook is the new Facebook. (via hysterical paroxysm)
I wanted to clarify my comments about Facebook’s similarities to AOL. I don’t think Facebook is a bad company or that they won’t be successful; they seem like smart passionate people who genuinely care about making a great space for their users.1 It’s just that I, unlike many other people, don’t think that Facebook and Facebook Platform are the future of the web. The platform is great for Facebook, but it’s a step sideways or even backwards (towards an AOL-style service) for the web.
Think of it this way. Facebook is an intranet for you and your friends that just happens to be accessible without a VPN. If you’re not a Facebook user, you can’t do anything with the site…nearly everything published by their users is private. Google doesn’t index any user-created information on Facebook.2 AFAIK, user data is available through the platform but that hardly makes it open…all of the significant information and, more importantly, interaction still happens in private. Compare this with MySpace or Flickr or YouTube. Much of the information generated on these sites is publicly available. The pages are indexed by search engines. You don’t have to be a user to participate (in the broadest sense…reading, viewing, and lurking are participating).
Faced with competition from this open web, AOL lost…running a closed service with custom content and interfaces was no match for the wild frontier of the web. Maybe if they’d done some things differently, they would have fared better, but they still would have lost. In competitive markets, open and messy trumps closed and controlled in the long run. Everything you can do on Facebook with ease is possible using a loose coalition of blogging software, IM clients, email, Twitter, Flickr, Google Reader, etc. Sure, it’s not as automatic or easy, but anyone can participate and the number of things to see and do on the web outnumbers the number of things you can see and do on Facebook by several orders of magnitude (and always will).
At some point in the future, Facebook may well open up, rendering much of this criticism irrelevant. Their privacy controls are legendarily flexible and precise…it should be easy for them to let people expose parts of the information to anyone if they wanted to. And as Matt Webb pointed out to me in an email, there’s the possibility that Facebook turn itself inside out and be the social network bit for everyone else’s web apps. In the meantime, maybe we shouldn’t be so excited about the web’s future moving onto an intranet.
[1] And I’m definitely not, as more than one person has suggested, “bitter” about Facebook’s success. Please. Just because you disagree with something doesn’t mean you’re angry. The only reason I even wrote that post is that I got tired of seeing the same people who think AOL sucked, that Times Select is a bad business decision for the NY Times, that are frustrated by IM interop, and that open participation on the web is changing business, media, and human culture for the better trumpeting that this new closed platform is the way forward. ↩
[2] Aside from extremely limited profile pages, which are little more than “hi, this person is on Facebook and you should be too” advertisements. Examples here.↩
Earlier in the week, I made a comment in passing in a post about Vimeo:
you do know that Facebook is AOL 2.0, right?
A few people picked up on it and speculated what I might have meant by it. In reading those posts and poking around a bit, I found a post that Scott Heiferman made just after Facebook Platform launched in May:
While at Sony in 1994, I was sent to Virginia to learn how to build a Sony “app” on AOL (the #3 online service, behind Compuserve & Prodigy at the time) using AOL’s proprietary “rainman” platform.
Fast forward to Facebook 2007 and see similarities: If you want access to their big base of users, develop something in their proprietary language for their people who live in their walled garden.
Scott pretty much nails it here. I’ve no doubt that Facebook is excited about their new platform (their userbase is big enough that companies feel like they have to develop for it) and it’s a savvy move on their part, but I’m not so sure everyone else should be happy about it. What happens when Flickr and LinkedIn and Google and Microsoft and MySpace and YouTube and MetaFilter and Vimeo and Last.fm launch their platforms that you need to develop apps for in some proprietary language that’s different for each platform? That gets expensive, time-consuming, and irritating. It’s difficult enough to develop for OS X, Windows, and Linux simultaneously…imagine if you had 30 different platforms to develop for.
As it happens, we already have a platform on which anyone can communicate and collaborate with anyone else, individuals and companies can develop applications which can interoperate with one another through open and freely available tools, protocols, and interfaces. It’s called the internet and it’s more compelling than AOL was in 1994 and Facebook in 2007. Eventually, someone will come along and turn Facebook inside-out, so that instead of custom applications running on a platform in a walled garden, applications run on the internet, out in the open, and people can tie their social network into it if they want, with privacy controls, access levels, and alter-egos galore.
Update: I’ve clarified my AOL vs. Facebook thoughts here.
Congrats to the Vimeo team on the launch of the latest version of the site. Here’s the announcement post. The login/signup page is awesome. I also like how Vimeo has found room in the crowded video-on-the-web field, even though YouTube dominates the space. Vimeo is to YouTube as Facebook is to MySpace…not in terms of closed versus open (you do know that Facebook is AOL 2.0, right?) but in terms of being a bit more well thought out and not as, well, ugly (and not just in the aesthetic sense).
Facekicking, n. The act of accessing Facebook from your T-Mobile Sidekick. Coined while chatting with Jonah the other night…we decided that “facekicking” was more exciting to say than “sidebooking”.
Back in August 2005, I gave Google a good shot at developing a WebOS of sorts, a browser-based platform on which would run a suite of apps to replace a bunch of the most commonly used desktop applications. Google Gears is a another small piece of the bigger puzzle, a browser extension that allows web apps to provide offline functionality. I don’t think the offline thing is as important as it was two years ago; people have gotten very comfortable using web apps and web access, especially among heavy users, is almost continuous and ubiquitous. That and if the hype about Facebook’s new platform is accurate, working online together is more compelling than working offline apart.
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