Facebook versus WordPress

Last Friday, Fred Wilson put up a post on his blog AVC talking about the supposed difference in valuation between Facebook and WordPress. As usual, Fred’s posts result in lots of comments. Last count is 104.

I think that what makes this discussion difficult is if you assume that there is true justification for Facebook’s $15B current value. After all, the valuation came about when Microsoft invested in Facebook last October investing $240M at a valuation of $15B. I haven’t run into many people who can explain why a three year old company with little to no revenue, being worth so much!

The other problem that this creates is that now every social networking start up wants to use Facebook’s valuation as a consideration in their own valuation. I have run into this at least four times in the last couple months.

So, how can one justify the valuation? In thinking of this, I focused on Microsoft. What business decision would they use to justify the investment? Was it technology, or access to eyeballs, I didn’t think so. Then I got to thinking that what Microsoft effectively did with their investment is set a valuation so high that they have effectively taken Facebook off the market. I mean, who has that kind of money?

Pretty smart if you ask me. Microsoft doesn’t have to be concerned that some suitor will come along and scarf them up, and Mark Zuckerberg no longer has to spend time aswering questions about possible exits. They both win and for Microsoft it is a pretty low price.


1 Response to “Facebook versus WordPress”

  1. 1 David Saad April 23, 2008 at 5:28 pm

    Not just insightful, but brutally right!

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