Memex 1.1

From the Sydney Morning Herald…

THERE has been speculation recently about what is being called an internal Facebook valuation - a value the company has assigned to its own common stock that is drastically lower than the $15 billion valuation set so publicly last year by Microsoft’s investment.

According to the transcript of a June 13 case-management conference in the lawsuit settled last week between Facebook and ConnectU - one of the few documents in the case not under seal - that figure is $3.75 billion, or one-quarter of the Microsoft valuation.

ConnectU had claimed that Mark Zuckerberg, a former employee and Facebook’s founder, got his idea from ConnectU.

The relevant passage from the document, under the section titled Defendant ConnectU’s Position, said: “The term sheet and settlement agreement is also unenforceable because it was procured by Facebook’s fraud. Indeed, based on a formal valuation resolution approved by Facebook’s board of directors but concealed from ConnectU, the stock portion of the purported agreement is worth only one-quarter of its apparent value based on Facebook’s public press releases.”

The piece goes on to point out that Microsoft bought preferred stock — i.e. ones with special voting rights, so the ConnectU figure is probably too low. But it’s still not $15 billion.

Insightful piece about the UK housing market in this week’s Economist.

HOME renovation would seem to be as exciting a spectacle as, well, watching paint dry. But as Britain neared the peak of a decade-long housing boom, it became prime-time television as producers rushed to make shows like “Property Ladder”. Those happy days in which acquiring a house seemed a sure bet have now ended and even the boost of a quarter-point rate cut from the Bank of England on April 10th is unlikely to bring them back.

Prices, which had been drifting slowly lower over the winter, have started falling more rapidly and dropped 2.5% in March, according to Halifax, part of HBOS and the country’s biggest mortgage lender. The biggest monthly drop since September 1992 prompted widespread concerns in a country that still remembers its previous big bust, which started in late 1989 and from which prices did not fully recover for almost a decade…

So will we now see TV production companies rushing to make programmes entitled ‘Property Snake’? (After all, ladders take you up and snakes take you down.) I think not. Viewers aren’t interested in get-poor-quick stories.

From Creative Capital…

I just got a hold of the ComScore numbers for U.S. social networking sites, and it ain’t pretty folks. (See an abridged version of the chart below this post.) After peaking in October of 2007 with 71.9 million users, MySpace, the leading social network, has seen its audience fall back to around 68.9 million unique visitors. December saw no growth over November, though visitors were up 13% from last December.

More alarming are the engagement metrics. Since December 2006, when MySpace engagement peaked at about 234 minutes spent per visitor, time spent on the site has dropped consistently throughout the year. In December, time spent per visitor saw its biggest month-to-month drop, of about 8.5%, to 179 minutes per visitor per month, down from 196 minutes in November. That equates to a 24% year-over-year drop.

But the pain is not just a MySpace problem. It seems to be an industry-wide issue. The total audience of U.S. social networks seems to be stuck at a low-to-mid-single digit growth rate, while the engagment metrics are falling for just about everyone. Time spent on Bebo.com has been sliced in half over the last four months, while Friendster’s time spent has plummeted nearly 75% in the same time period. Overall, minutes spent per site fell 5% in December 2007 compared to the year-ago period….

More in that vein here.

From Jeff Jarvis…

A Deutsche Bank analyst says that a newspaper reader in 2004 was worth $964 a year. Today, that’s $500. Facebook’s 50 million active users translates to $300 per at that valuation. And newspapers are shrinking while Facebook is growing by 200,000 new users a day. A day. And those users spend an average of 20 minutes each day inside the site vs. 41 minutes a month on newspaper sites, says DB…

This morning’s Observer column…

Pssst … have I got a deal for you! Send me a cheque for £10 and I will sell you a 0.000001 per cent interest in NetworkerColumns Ltd, a privately held company which produces copious quantities of mildly irritating prose. I will then release a press statement announcing that we are both partners in a £1bn company!

Daft, isn’t it? Well, it’s exactly the same logic that has led the mainstream media to hail Facebook as a $15bn company - that is to say, the fifth-most valuable internet company after Google, eBay, Yahoo and Amazon. What happened is that Microsoft, after months of secret negotiations, announced it was paying $240m for a 1.6 per cent stake in Facebook. Multiply 240 million by 100, divide by 1.6 and out pops the ‘valuation’…

The Economist isn’t impressed by the huge valuations currently being placed on Facebook. Neither am I.

Update: In the end, Microsoft valued Facebook at $15 billion.

Microsoft has paid $240m for a 1.6% stake in Facebook that values the hugely popular social networking site at $15bn.

Facebook spurned an offer from Microsoft’s rival Google, which was also keen to invest the site.

Microsoft will also sell internet ads for Facebook outside the United States as part of the deal that took several weeks of negotiating.

What’s surprising is how small the Microsoft stake is. This has to be about advertising rather than investment.

From the New York Times…

BUDAPEST, Oct. 9 — In his first public remarks since quitting last week as chief executive of the Internet phone company Skype, Niklas Zennstrom said Tuesday that he had no regrets about his handling of the company but conceded that he might have tried to squeeze money out of it too quickly.

EBay, the online auction company that paid $2.6 billion for Skype in 2005, said last week that it would take a $1.43 billion charge for the service.

EBay has retained Mr. Zennstrom as Skype’s nonexecutive chairman. Michael van Swaaij, eBay’s chief strategy officer, will fill in as chief executive until a permanent successor is hired.

The write-down was widely seen as a concession that eBay had overpaid for Skype, but Mr. Zennstrom, a Swede who was a co-founder of the company in 2003, defended its value.

In the second quarter, revenue grew 100 percent from a year earlier, to $90 million, and the company recorded a profit in the first quarter, he said.

About 220 million people, most of them outside the United States, are registered with Skype, which uses the Internet to carry phone conversations between personal computers.

“It’s not like it’s been overtaken by Microsoft or Google or Yahoo,” Mr. Zennstrom said at a technology conference here. “Over the longer term, I think it’s going to turn out to be a good business.”

Revenue and earnings projections made by Skype executives before the sale to eBay turned out to be “a bit front-loaded,” he said.

“Sometimes I feel like we tried to monetize too rapidly,” Mr. Zennstrom said.

This morning’s Observer column…

First of all, an apology. In previous editions, this column may have suggested that VoIP (internet telephony) stood for ‘Voice over Internet Protocol’. Now it turns out that it is, in fact, an acronym for ‘Very over-Inflated Price’. The proprietors deeply regret this error and hope that it has not caused any reader to make foolish investment decisions.

This matter was drawn to our attention by an announcement made last week by eBay. The company reported that in the quarter just ended, it will take £700m in write-offs and charges related to Skype - for which two short years ago it paid £1.3bn in cash and stock, plus what was enigmatically described as ‘a potential performance-based consideration’ estimated by industry sources at £750m. That’s £2.75bn in total…

I also wrote a short piece on the Wikipedia-obituary kerfuffle.

From Good Morning Silicon Valley…

Today, in what will undoubtedly be a blow to the Skype founders’ seller rating, eBay finally acknowledged that its bid for the VoIP firm may have been a tad overenthusiastic and that whatever expectations it had were not being met. EBay announced that in the quarter just ended, it will take $1.4 billion in write-offs and charges related to the Skype acquisition. About $530 million will go to former Skype shareholders to help them forget about those additional performance-based payouts. And eBay will write off about $900 million in Skype-related “goodwill” to more accurately reflect the acquisition’s value. And just in case the message wasn’t clear, Skype co-founder Niklas Zennstrom was eased out of the CEO’s office and given the non-executive chairman’s seat at the Skype board table.

Wow!

That still leaves open the question of what eBay ought to do with its tarnished toy, and Henry Blodget has an answer: sell it to someone who could put it to use, like Yahoo, Microsoft or Google.

This morning’s Observer column…

To the old question: what are friends for? we must now add: how much are they worth? This is topical because rumours abound that Microsoft is contemplating buying a stake in Facebook, the social networking site. The really interesting bit is the arithmetic. Microsoft is supposedly contemplating paying between $300m (£147m) and $500m for a 5 per cent share. If true, this suggests that its advisers put a value of between $6bn and $10bn on Facebook. Google is also reported to be sniffing around, raising the prospect of a bidding war for a website which essentially enables people to post embarrassing photographs and impress acquaintances with accounts of their busy lives…