Facebook Social Application Market Value

Oct 18, 2007 – 08:10 by Ryan

Let’s say Facebook is able to raise capital on a pre-money valuation of $15B. We’ll also assume that they have 39M users. Not including the value of their IP or employees, Facebook is worth approximately $394 per user. Believe it or not that’s not even close to the $710 per user Yahoo! paid when they acquired Broadcast.com in 1999 from the dancing wonder Mark Cuban. Inspired by the recent Compete article that discusses how much traffic third party applications contribute to Facebook we played around with the value of the social application market on Facebook.

A warning about our numbers. All of the data we reference in our calculations comes from Compete and some of the numbers are from August 2007.

If Facebook users browse a staggering average of 44 pages per visit and the site had 350M visits in August then you’re looking at roughly 15.4B page views per month. Now if we trust the Compete numbers we see that 3rd party applications are responsible for roughly 10% of the Facebook traffic. This works out to about 1.5B page views per month or 49M views per day for 3rd party social applications.

What is the value of the 3rd party social application market to Facebook? First we have to make a few assumptions. For this entry we’ll assume the average CPC is around $0.20, all pages have one skyscraper banner/flyer and the average CTR is 0.04%. Based on these assumptions and the data from Compete we can see that Facebook’s potential ad revenue is ~ $1.4M per year for the social application traffic on Facebook. The CTR needs to be dealt with because this much traffic warrants a lot more revenue. This number doesn’t include the value of the 3rd party applications or the ad revenue application providers are able to generate.

What does this mean?

The social application industry is only five months old and it’s off to a respectable start. With more players promising competitive platforms things are about to really start cooking.

Going forward?

We think eventually, the Facebook specific traffic will shrink and application traffic will dominate the site (including the Facebook owned applications). Really, how many times can you scroll through a friend list? We can also see that only a fraction of the Internet population has been fully indoctrinated into using applications on Facebook. After Facebook closes this round we expect to see them launch a major advertising campaign. We also think we’ll see application providers start playing around with subscription models on social networks. If there is a social application you use all the time wouldn’t you pay $10 a year to avoid the ads? This would be incredibly easy if there was a Facebook payment system ;-)

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