The Value of Facebook

Is Facebook really worth $50 billion?

That’s been a question on a lot of people’s minds this week, as word spread that Goldman Sachs and the Russian investor Digital Sky Technologies had ascribed that value to the social-networking company by buying high-priced stakes in it.

Investors are betting, of course, that Facebook will be able to translate its hundreds of millions of users into ever-greater sales of online advertising. And maybe it can. Despite some lingering questions about Facebook’s approach, which we’ve raised before, there is a strong case to be made that the company has been properly valued—at least if you compare it to, say, Google at similar stages in their evolution.

[EXPAND More]Nevertheless, Peter Drucker may well have thrown a note of caution into the conversation. Drucker understood the power of digital technology to transform the way we live our lives. “The impact of cheap, reliable, fast and universally available information will easily be as great as was the impact of electricity,” Drucker wrote in his book The Age of Discontinuity, published in 1968, 16 years before Facebook founder Mark Zuckerberg was born. “Certainly young people . . . will use information systems as their normal tools, much as they now use the typewriter or the telephone.” Yet, at the same time, Drucker was also wary of all the hype that tech companies tend to create.

“Will you people . . . please accept the fact that the computer industry, as an industry, hasn’t made a dime?” Drucker asserted in an interview with Wired magazine in 1996 during the dot-com bubble—a period that some are starting to wonder if we’re repeating now. Drucker noted that there are always individual companies that earn lots of money. But even they tend to falter within a matter of decades.

Drucker added that this was true not only of tech firms. “Most of those great international bankers who were in the brand-new industry, the first information-based industry in the world, did all right,” he explained. “Some lasted one generation, two generations. Then they miscalculated, misspeculated and ended bankrupt.

“The Medici went bankrupt in the 1490s. The Genoese in general went bankrupt. Barcelona went bankrupt. . . . Individuals made enormous fortunes. But the industry never made a penny.”

So, what do you think? Is Facebook properly valued at $50 billion? Or would you put a lower tag on it?[/EXPAND]