In the spirit of stomping out LazyBlogging as my friend Steve Rubel calls it, I have decided to do a longer post. This post was inspired by some conversations that I have had with my venture friends where they asked me, “what would you do to take Facebook to the next level?” Well, gents, here is the first thing I would look into.
Disclaimer: I am a geek.
Here is the billion dollar question (literally): how is Facebook going to leap past their already-stunning $15B valuation? To put that valuation into perspective, Yahoo’s market capitalization is roughly $13B higher than Facebook. Given the fact that Yahoo’s revenue was $6.4B – probably around 30-40X greater than that of Facebook – the Facebook team has a bit of work ahead of them.
That being said, I think that it can happen. Moreover, it probably can happen in a number of ways. One of the most common discussions is around how they can best leverage their massively growing database of social information to fuel new advertising formats. Clearly the Beacon program was created in that spirit. Although I am definitely all for pioneering new formats for advertising (duh), I think there is a more obvious path – search.
What is the only other service that users of Facebook probably leverage as much as their favorite Social Network? Google. Well, here is a crazy idea, why doesn’t Facebook use their massive currency to purchase a search engine? Piper Jaffray estimates that the value of the paid search market will be $33B in 5 years. If they land 10% of this market that would translate into roughly $3.3B in revenue. Not bad, right? With a little elbow grease (ok a lot), they could leverage social data to generate more relevant listings. Let’s take it a step further. What if they purchased a company that was good at contextual text matching? Remember how Google acquired a little company called Applied Semantics, that gave birth to a little thing called AdSense?
So here is the vision:
– Facebook cuts deals to expand user base to break 100M
– Facebook purchases search engine like Hakia, or Powerset
– Search engine interface is the first thing on Facebook.com
– They make a big hubaloo w/the press, maybe by flaunting a cool people-search tool
– Facebook drives growing audience to the newly integrated service
– They leverage their existing ad system to monetize this massive new inventory
– They purchase a contextual targeting engine
– FB leverages creates monetization platform that leverages context + social information to target ads
– After perfecting the technology inside FB, they launch an ad product for publishers to use outside of FB to compete with AdSense.
– This search engine becomes the number one people search engine and swiftly gains market share in the primary search market
– FB purchases a local service and couples their existing local community data with it to create a new FB Local Search
– Web 2.0 geeks start complaining that we have created a monster (again).
IMHO the secret is not in looking forward, it is by looking back and executing a solid M&A effort to dive into one of the largest markets on the web today – search. If I were running strategy for Mark, I would get some money from the piggy bank and go shopping – fast.
Anyway, if FB guys read this and end up pursuing my nutty plan, please don’t forget to send me a check. Chamath, you know how to reach me. 🙂