MattMaroon.com

It’s occurred to me since the last post that the smartest thing Facebook has ever done is popularize the term “social graph”. Not because I like the term (I don’t) but because it alone is the reason they have a $15 billion valuation.

Before that, social networks were just entertainment, and no entertainment site could be worth that massive an amount. YouTube sold for about 1/10^th of Facebook’s current valuation, and had better traffic (still does in the US) and the ability to sell video adds, which most people thought (and many still do) would be more valuable. Unlike Facebook, YouTube was also the clear leader in its space, rather than a somewhat distant second. And MySpace, which still has over twice the traffic that Facebook has here (though only a slight lead globally) sold for only a fraction of what YouTube did.

For Facebook to get a vertigo-inducing valuation, they had to convince people that they were a lot more than just entertainment. They had to convince them that they were serious business, “the next Google” even, a utility that people would be unable to live without. So instead of being just another aggregator of tools people already have, they became holders of the “social graph”. No longer are they just flickr+email+evite rolled into one, they’re keepers of the connections that bind humans together.

And they have no idea how they’re going to monetize that. They’ve clearly been flailing around so far, trying to do so but failing miserably. In fact, just about every attempt they’ve made has merely angered customers. But that doesn’t matter, they just have to convince people they own the social graph. And it’s a graph, so it must be important right? If it were unimportant, it might be a social pie chart at best. And if they own something important, and they are smart, they’ll figure out a way to justify valuations roughly equal to Ford Motors on the following principle:

(note the tiny Zuckerberg gnome)

Unfortunately they’re having a very hard time with Phase 2. For one, lots of other people already have a better social graph than they do. My Gmail contacts and my Aim buddy list are both more accurate depictions of my true connections. My cell phone’s history might be the best of all. And more importantly, they’re all on open platforms rather than a spammy walled garden.

And the fact that the social graph exists in so many places, and will always be better there (nearly everyone has a cell phone, only 1/10^th of people have a Facebook account) makes it hard for me to believe Facebook can ever do well enough to justify $15 billion.

This entry was posted on April 11, 2008 at 1:55 pm and is filed under tech . You can follow any responses to this entry through the RSS 2.0 feed Both comments and pings are currently closed.