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July 31, 2007

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Lee Lorenzen

Henry,

I think you miss the most important point that Facebook has many more ways of making money than Google. Google only monetizes users as they leave their site while Facebook can monetizes users as they engage with their site. This fundamental distinction is why Google is scrambling to come up with a response and Microsoft is salivating at the chance to break Google's coupling of search dominance with advertising dominance.

As the CEO of Altura Ventures, the first facebook-only VC firm, I've made the point about Facebook being worth $100 billion. Unfortunately, I don’t have any current ownership in Facebook itself nor do I have any way of directly investing in Facebook. So, I'm doing the next best thing which is to invest in Facebook apps which I believe will allow our fund participants to win big as Facebook’s true value is more broadly recognized.

Let me say that I appreciate your skepticism regarding Facebook being worth $100 billion and I hope that you will read the full discussion board post that backs up the point and not dismiss it as some kind of random hype.

To summarize the points in my post:

1. Facebook will grow to 200 million users by Dec. 2008. I base this on what they’ve already accomplished:

FB Year 1 (Dec. 31, 2004) — 1 million
FB Year 2 (Dec. 31, 2005) — 5 million
FB Year 3 (Dec. 31, 2006) — 12 million
FB Year 4 (Apr. 26, 2007) — 20 million
FB Year 4 (Aug. 1, 2007) — 30 million
FB Year 4 (Dec. 31, 2007) — 50+ million
FB Year 5 (June 6, 2008) — 100+ million
FB Year 5 (Dec. 31, 2008) — 200+ million

2. Facebook’s valuation will be around $500 per user. I base this on the multiple sources of revenue that will flow to them from:

2a. targetted brand advertising — their Yahoo play
2b. keyword driven search advertising — their Google play
2c. P2P e-commerce transactions — their eBay play
2d. B2C e-commerce transactions — their Amazon play
2e. Industry Alliance transactions — their Microsoft vs. Google play

3. Facebook is the world’s FIRST social operating system and the world only needs ONE such open platform. Therefore, the market power of the dominant player in this upcoming major OS transition will be HUGE. In my opinion, facebook which started in 2004 and is becoming the “first mainstream Social Operating System” is similar to Microsoft Windows which started in 1984 and became the “first mainstream Graphical Operating System.” Just like with Windows, whoever controls the OS and whoever controls the dominant applications for that OS will make HUGE SUMS of MONEY over the next 20 years.

WRT your comparison to Google’s $160 billion value, as I said you must remember that Google makes their money by monetizing people as they leave their site. Contrast this with Facebook’s multiple sources of revenue which are mostly tied to people staying within Facebook’s environment. Everything big and important (but slightly broken) about the current internet has a chance to be re-invented and re-interpreted inside of Facebook as an application with the added value and power of an ever-growing social graph of connected users.

For example, you can already see how facebook has dramatically improved e-mail by offering a constantly updated global address book where everybody you care about can easily find you and by creating an environment that effectively kills SPAM because no anonymous person or marketing company can bother you more than once.

You can read the details about my views in the full post in my Official Altura Ventures & AppFactory Facebook Investment Fund Group (see http://www.facebook.com/group.php?gid=2392191727) and my comments to those who asked questions about this $100 Billion valuation (see http://www.facebook.com/topic.php?uid=2392191727&topic=2793).

Thanks,
Lee Lorenzen

(c) 2007 Altura Ventures LLC

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