Is Facebook worth $15 billion?

October 24, 2007, 11:03 PM UTC

By Josh Quittner

With Microsoft (MSFT) buying a minority share that values Facebook at $15 billion, hyperbole became reality. Or did it? The answer to that question turns on whether the social network is worth what Microsoft paid.

And that depends on whether you believe Facebook is just the latest online fad—or whether, as Facebookies believe, the social network is building the next, grand computing platform. (A platform is geek for a computer environment upon which applications can be built. Windows, for instance, is a platform. So is the Web.) Silicon Valley, and the rest of the tech world, is divided on this point.

In one camp are the cynics, or rather, the folks who believe that the One, True Platform is the wide-open Web. The people on this side of the debate tend to be Google (GOOG) partisans—and never mind that Google is the 800-pound gorilla that, through its brilliant, targeted search advertising, rules the Web. On the other side are those who believe the Web is too open, too raw, too unruly. Facebook, which is closing in on 50 million members, promises to restore control—over privacy, unwanted email, and virtual contact of any kind—to users. That’s a pretty powerful lure, and I’ve already written that, in my opinion, building the “Innernet”—where we can define our persona and limit our contact with the outside world—is the next big stage of online evolution.

The tricky part? How does Facebook/Microsoft make money? Advertising is the obvious answer, but how that works, is anything but apparent. Most people believe that when Mark Zuckerberg & Co. talk about social ads, they’re conjuring up a scenario that looks like this: I login to my Facebook page, and instead of a normal ad, I’m greeted with a banner that says something like, “Hey Josh! It’s your friend Jim Smith’s birthday in two weeks. Jim loves Neil Young and Neil has a new album that just came out last week. Buy it here.”

Now, that’s pretty compelling. Or pretty intrusive. I honestly don’t know how I’ll respond to such a solicitation. Again, the geek world is split on this point, with some people saying that’s a violation of privacy, while others maintain that privacy—as one social network pundit told me recently—is an old man’s concern. So whether Facebook is worth $15 billion (or a whole lot more) really depends on whether it can figure out a way to gin up new kinds of online ads that work far better than anything we’ve seen. If it makes that breakthrough, $15 billion for Facebook will look like the deal of the century.