15 Billion More Reasons to Worry About Facebook
Oh, my. — Oh, my. — Dig a hole and hide. The end is nigh. And how do you spell Ponzi (as in scheme) again? — When I reported in this column two weeks ago that Facebook was looking to raise a new round of funding …
Context & Ripple Effects
Two weeks after reports that Facebook was seeking fresh financing, the company is being discussed at a far larger implied valuation. That matters because Facebook had also launched fbFund to back application startups, tying its growth story to a wider developer ecosystem.
The reported Microsoft interest was carried broadly by major outlets, but the funding round itself remains unconfirmed in the available record. The central question is whether the proposed valuation can be supported by Facebook's social-graph and platform ambitions.
First-order effects
- A financing round at the reported $15 billion valuation would give Facebook a much stronger capital base while setting a demanding benchmark for investors evaluating the company.
- Microsoft's reported interest would position Facebook as a more consequential partner in its advertising competition with Google, even though no investment is confirmed here.
Second-order effects
- Facebook application startups backed through fbFund would gain a better-capitalized platform sponsor, while becoming more exposed to the strategic priorities of its largest prospective investors.
- A high private-market valuation would push rival social-network platforms such as MySpace and LinkedIn to defend the value of their own user graphs and developer ecosystems.
Third-order effects
- If major technology companies use minority stakes to secure distribution and advertising alliances, social networks may become strategic infrastructure rather than stand-alone consumer sites.
- The episode points to capital concentrating around platforms that control user relationships and attract third-party developers, with valuations increasingly resting on ecosystem leverage as well as present operations.
The trend: Social-network financing is becoming a contest to own the social graph, developer ecosystem, and advertising relationship around it.