Why people are always wrong about Facebook

People like Scoble still think Microsoft is going to drop something like $20 billion on Facebook. A site with maybe $0.2 billion in revenue? Yeah, okay. Aside from what I like to call the decimal-place-mismatch let me explain why Facebook is not worth that much and why Zuckerberg is not a billionaire.

We aren’t in a vacuum

There are many more variables to how Microsoft decides to drop $240 million on a “stake.” Sorry but you can’t just say “oh, that’s a percentage, let’s multiply it.”

I liken the situation to that of my friend who recently started a company and moved into 200 square feet of a 10,000 foot floor (for those of you playing at home, that’s 2%). A generous businessman owns 10,000 of empty space and is renting 200 square feet for, let’s say, $2,000/month. So can we say that each square foot is worth $10 and call it good? Sure. Wait, no–no we can’t!

Just like we can’t say each percentage of Facebook ownership is worth $150 million. Just like we can’t say Zuckerberg’s 30% puts him at $5 billion.

We can’t cross-multiply-and-divide because we should consider the fact that

  • My friend has the bathrooms all to himself
  • My friend can be as loud as he wants
  • He can throw a party in the space and not compete for the “prime” space
  • There is no competition for resources like printers, power, corner offices, etc.
  • The infrastructure is already there to support him and his growth

To keep up with the metaphor, Microsoft can do at Facebook what my friend can do in his new office space. The money ($14.75 billion) isn’t really there. Nobody went to Mark’s bank account and deposited a billion dollars. Microsoft assigned a dollar amount to a percentage–but that dollar amount is coming with more than a “slice” of the pie. So we can’t treat it like that. Stop doing that!

I know my point is simplistic but I’m a little annoyed (that this isn’t the first time we’re throwing around huge numbers at Facebook). This is why people like Sarah Lacey suck and why Scoble will never be one of those folks I ever listen to. Sorry to get personal but let’s slow down and think about this…