Moses Kagan's Aurora Borealis

Just like everyone else, I love (and use) the site. However...

Facebook is only ever going to be Yahoo 2.0.

Like Yahoo, Facebook:

1. Has an enormous audience with diverse interests
2. Has an audience composed of people who do not come to the site in search of specific goods / services / information

Therefore, Facebook is only ever going to be a display advertising business, one which generates such a high volume of impressions that supply will always outstrip demand. Sure, on the margins, Facebook will come up with innovative campaigns, improved targeting, etc. But fundamentally, its audience is not sitting there with mouse in one hand and credit card in the other. Therefore, it ain't Google.

How about comparing Yahoo and Facebook in terms of revenue:

In 2007, Yahoo is going to do between $6.5b and $7b in revenue, leading the market to value it at $35b and change.

In 2007, Facebook is going to do $150-200 MILLION in revenue off of 45m users. Incidentally, 50% of this is coming from one (probably money-losing) deal with Microsoft.

To reach Yahoo's revenue figures, Facebook is going to have to increase its top line by 30-35x.

And, if it reaches that magical milestone with margins similar to Yahoo's, Facebook will be making $1.5-2b in cash from operations per year. Which is considerably less than half of what Google made last year.

In short, we're watching the rise of Yahoo 2.0, not some paradigm shifting behemoth. So everyone should calm down.

Labels: facebook, Google, Yahoo