Putting the Price Tag on Facebook: Quantifying the Value of Online Social Networks

Published 26 Apr 2010
Reference 5696
Industry Internet Online Media
Region North America
Summary

The case puts the reader in the position of a fictional venture capitalist considering an investment in Facebook. As part of the investment decision process, the protagonist analyzes the evolution of online social networks (OSN), the market profile and the various existing business models and valuation approaches. Questions are posed on what valuation methodology should be used to quantify the value of online social networks like Facebook. What assumptions should one use in a financial model and how will this affect the valuation? If one does invest, how and when might an OSN become profitable, and what type of return should an investor expect?

Teaching objectives

Understanding the dynamics of the Web 2.0; identifying and quantifying online revenue models; understanding and comparing financial evaluation methods for online businesses; executing a customer lifetime valuation.

Keywords
  • Facebook
  • Social media
  • online revenue models
  • valuation methods
  • customer lifetime value
  • online advertising
  • discoutend cash flow
  • Web 2.0
  • RD0310
  • AR2010
  • AR0910