PALO ALTO – Facebook.com's mastermind, Mark Zuckerberg, is sitting on a gold mine that could make him the next Silicon Valley whiz kid to strike it rich.
Associated Press
Mark Zuckerberg started the Facebook site in 2004 while he was a sophomore at Harvard University.
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But the 22-year-old founder of the Internet's second-largest social-networking site also could turn into the next poster boy for missed opportunities if he waits too long to cash in.
Facebook is expected to generate revenue of more than $100 million this year, and the bright outlook is one reason Zuckerberg felt justified spurning several takeover bids last year, including a $1 billion offer from Yahoo.
“We clearly have a bias toward building than selling,” Zuckerberg said. “We think there is a lot more to unlock here.”
The build-or-sell dilemma facing Zuckerberg is becoming more common among the precocious entrepreneurs immersed in the latest Internet craze, a communal concept of content sharing that has been dubbed “Web 2.0.”
Besides Facebook, other Web 2.0 startups mentioned as prime takeover targets include online video site Metacafe and Photobucket, which has emerged as one of the Internet's busiest destinations by hosting personal videos and photos that are routinely linked to top networking sites like MySpace and Facebook.
These sites find themselves at a critical juncture reached several years ago by the Internet's first big social-networking site, Friendster.com, which chose to stay independent instead of selling. That decision is now regarded as one of Silicon Valley's biggest blunders.
Web 2.0 startups have emerged as hot commodities because they are drawing more people away from television, newspapers and other media traditionally used for advertising. Particularly hot are online video channels and social networks, a catchall phrase attached to sites that enable people with common interests to connect and deepen their bonds.
Deep-pocketed companies are angling for a piece of the Web 2.0 action – a quest that already has yielded a couple of big jackpots, helping to propel the sales prices of startups to their highest levels since the dot-com boom.
News Corp. paid $580 million in 2005 to buy MySpace, the largest social-networking site, and Google snapped up video-sharing pioneer YouTube for $1.76 billion late last year.
“I'm surprised a lot more companies haven't already been bought,” said Reid Hoffman, a veteran Silicon Valley executive who has invested in many startups, including Facebook. “My hunch is the deals are only going to get more expensive in 2008 and 2009.”
In 2006, the average price paid for a startup funded by venture capitalists rose 19 percent to $114 million. That was the highest amount since the dot-com frenzy of 2000, when the average price of venture-backed startups peaked at $337 million, according to data from Thomson Financial and the National Venture Capital Association.
If the deal-making market continues to heat up, Zuckerberg will end up looking smart for rebuffing Yahoo and other suitors that included Microsoft and Viacom.
Assuming Facebook hits its financial targets, the Palo Alto company should be able to command a price well above $1 billion or pursue an even more lucrative initial public offering of stock in the tradition of Google, Yahoo, eBay and Amazon.com – a group of Internet icons now worth a combined $250 billion.
A Facebook sale or IPO is bound to happen eventually so the startup's early investors, consisting mostly of venture capitalists, can realize some profits. Facebook has raised about $38.5 million since Zuckerberg started the site in 2004 while he was a sophomore at Harvard University.
Zuckerberg has some flexibility in deciding when to cash out because Facebook already is profitable.
An IPO or sale will “make sense at some point for the company, but I never think that's the goal,” said Zuckerberg, who is believed to control nearly one-third of Facebook's stock. “The goal is to . . . continue introducing certain revolutionary products that push us to the next level.”
Marc Andreessen, who made a fortune during his 20s as co-founder of Web browser pioneer Netscape Communications, is among those who believe Facebook is going to become even more valuable during the next year or two.
“Facebook is doing the smart thing. If you are in a big market like social networking, you are usually better off waiting (to sell),” said Andreessen, who is chief technology officer for another social-networking startup, Ning. Had MySpace remained independent, it would probably be worth $5 billion now, Andreessen estimated.
Should Facebook stumble, it may someday be suffering the same pangs of regret tormenting Friendster, which turned down a bid from Google in 2003 when Friendster reigned as the Internet's hottest social-networking site.
Had that offer been accepted, Friendster founder Jonathan Abrams and a small group of early investors reportedly would have received $30 million in Google stock that would have been worth about $1 billion today.
Abrams left Friendster in 2004 after a falling out with the company's venture capitalists. Now working on its fourth chief executive since Abrams' departure, Friendster hasn't been able to recapture the buzz that once made it a prized commodity.
In January, Friendster attracted just under 1.3 million U.S. visitors, leaving it far behind MySpace (61.5 million visitors) and Facebook (19 million visitors), as well as several relative newcomers to social networking such as Bebo.com, MyYearbook.com and Hi5.com, according to data from comScore Media Metrix.
Other tales of woe are bound to emerge after the latest deal-making cycle winds down, predicted Ken Marlin, a technology investment banker in New York.
“The world is filled with companies that waited too long to sell and missed their window of opportunity,” he said. “We think this land grab (on the Internet) probably will only last another year or two.”
No startup is stirring more takeover chatter than Facebook, which began as a site exclusively for college students before opening up to high school students in 2005 and finally accepting all comers last fall.
The site has nearly 17 million registered users, most of whom fall into the under-35 demographic prized by advertisers. And Facebook gives advertisers plenty of marketing opportunities because its users churn through about 1 billion Web pages per day.
Facebook struck its first major financial partnership last summer with Microsoft, which reportedly guaranteed to deliver about $200 million in ad revenue through 2008. Zuckerberg said the advertising contract with Microsoft recently had been extended through 2011. Terms of the extension haven't been disclosed.
“For now, I just think it's very important to have a good sense of direction about where we are going,” Zuckerberg said.
