Is Google going to drop $2 Billion on the Facebook? No Way!
According to Reuters, Google is raising $2.1 billion in a new stock offering by offering to sell 5.3 million shares of what was not so long ago the hottest stock out there. Now, as soon as I found out about this, the first thing I thought was, how in the hell is Google going to spend another $2 billion? Rob Hof over at Business Week thinks that maybe it could be to buy Facebook, which supposedly turned down $750 million and is seeking $2 billion. Now, the numbers do match up as far as Google having $2 billion and Facebook wanting $2 billion, but what would the real motive be?
Is Facebook even worth that much money? I honestly don’t know if Facebook can really churn out even a billion dollars in advertising revenue in the next few years. Even if it could, what is stopping another slightly cooler version of the Facebook to supplant it? What happens when Web 3.0 hits and Facebook and Flkr other Web 2.0 companies aren’t hip anymore? What happens when MySpace becomes the next ePets? or eToys? Do Web 2.0 companies have any strategy for long term business success other than to make something interesting in hopes that Google will buy them out?
Personally, I don’t see any great strategy present in most of this second generation of dot com boom companies. If Google didn’t come along to buy these companies, they would vanish into obscurity. As it is, they vanish into the Google overmind. They are absorbed much the same way that Microsoft absorbed oh so many companies in its prime. It’s almost tragic how Google is quickly becoming Microsoft’s successor in every way possible: Early innovation, rapid growth, a driving technological ideology, flood of cash from a pair of successful products, massive buyouts of smaller tech companies who could become competition down the road, becoming overweight and slow to respond, and eventually becoming blind to breakthrough opportunities which inevitably dethrone both Google and Microsoft (and Apple and IBM before them).
So, what is the money for? I don’t have the slightest clue what Google would want with another $2 billion, but I hope that it isn’t to buy Facebook. $2 billion for Facebook would be like throwing at least a $1 billion right out the window for no reason at all. Any company that buys Facebook will probably have trouble making more than $750 million back from it in the next 5 years. After all, if the Facebook had that kind of profit potential in the next 5 years, why would they want to sell? That just doesn’t make sense.
What would make sense would be Google developing and deploying a nationwide network of some kind. The USA is very quickly dropping in the worldwide internet speed to the home or office rankings. What we would consider “broadband” is a joke in many countries. At the same time AT&T and other major telco’s want to start charging Google for transferring data over their network. That could get very expensive in a hurry. I could definately see Google buying a huge stake in Level 3 and/or Sun Microsystems to start building the nation’s most advanced private computer network. Then, Google could offer internet access faster and cheaper than any of the telco’s or cable companies would even consider offering.
Providing a massive consumer internet service would be a huge long-term boon for Google. Just look at how AOL is still surviving as primarily a dial-up provider even though they have lost millions of subscribers to cable broadband networks. So, the moral of this story? Google needs to spend the $2 billion on sound long-term investments and not on snazzy Web 2.0 fads.
March 30th, 2006 at 8:51 am
You do realize GOOG spent 1/2 the 2 billion on purchasing 5% of AOL…That makes your last paragraph RICH!
March 30th, 2006 at 10:14 am
Facebook currently gets about 6 billion pageviews per day, and is a phenomenon better compared to the likes of AIM or Yahoo messenger than ePets or eToys. Nonetheless, I don’t think an acquisition of Facebook for 2 billion is the best idea ever…
March 30th, 2006 at 11:02 am
Alex, obviously 6 billion pageviews a day is a lot, but that doesn’t mean that it has 6 billion users. The Facebook is a web social network and a lot of the pageviews come from looking at profiles and posting changes and such. I have no idea how many tens or hundreds of thousands of active users Facebook has, but it’s important to keep in mind that people aren’t clicking on ads when they update their profile or posting on someone else’s. If half of the pageviews come from updating profiles, uploading pictures, and posting on someone else’s wall then you aren’t going to get a very high advertising conversion. Granted, with that big of an audience you don’t need a very high conversion ratio for the site to rake in lots of money, but $2 billion is a lot of money and realistically, if they are really capable of making that kind of money why would Facebook sell out? They’d be better off going public and making a killing on an IPO.
Also, HopeSeekr the point I was making about AOL was that they survived the dot-com bust because they have a huge customer base and that they get a recurring monthly revenue from each customer. If Google had their own super-high speed broadband service, it could provide excellent recurring long-term income. That is something that Facebook would not be able to provide 5 years down the road when it’s no longer “cool” to post on Facebook. Also, a Google online service would provide another way for Google to promote it’s software and services. All in all, it just seems like a Google internet service would be a smarter investment than Facebook would be.