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Facebook in 2010: David Hansson of 37signals argues that if Facebook can't figure out how to make money with 500MM users, it never will. What are the merits of his argument?

  • Is Hansson being hyperbolic in his post [1] or does he have a point? Adrian Slywotzky and others have argued that profits don't come from volume growth.  Sean Parker has stated something to the effect that, the Network Effect and the difficulty moving friends to another platform make Facebook unstoppable.  Is Facebook's future so certain? [1] http://37signals.com/svn/posts/2585-facebook-is-not-worth-33000000000

  • Answer:

    I really don't think that's the crux of Hansson's argument. Hansson is arguing first of all that to determine a valuation off of a small amount of shares moving back and forth is rather pointless from a financial standpoint, and usually these "valuations" are all fun and games, until Facebook donated $100MM of stock at that enormous valuation. Hansson's second point is that that valuation is clearly inflated when you compare it to Google, for its current run rate. Of course, yes, he points out that the monetization of the site has been slow compared to others, and yes, it probably won't have a cash cow like Google does with AdWords. That being said, he rather ignores the progress in monetization that Facebook has made in the past year. I'd say the tone of his negativity comes from the $33B valuation people are talking about. If it was, say, a $10B valuation, I suspect Hansson would not have as much of an issue with things.

John Fernandez at Quora Visit the source

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DHH is an impressive guy and has achieved more than I have, but he is prone to pooh-poohing any business that doesn't do things exactly the way that he and 37Signals would have done them. Facebook has the potential to generate massive growth and profits, and it will.  He may disagree, but if so, he should have argued that point, not just dismissed the entire enterprise. He also was almost certainly wrong about the company not being worth $33B given that revenue and valuation have only shot up from when he wrote this last year.  Yes, he'd argue the new valuations are bogus, too, but what is the right number?  $20B?  $10B?  Or would he argue the right value is $0 as long as earnings are negative?  Would he really pass up owning Facebook if someone gave it to him for the price of a latte? His logic about the valuation being high given the small number of share trading hands is also bogus...many companies have small floats, but the people buying the shares are paying the price they pay based on a conviction that the price is worth paying.

Michael Wolfe

If they can make $1.2 billion in revenues this year, they can also become (very) profitable.

Jüri Kaljundi

Zynga makes $50 million a month.  I don't understand why Facebook doesn't push transactional apps on their platform more aggressively.  They get 30 percent of every transaction. It seems that every developer I know has tasted the Twitter API, but most can't stand the Facebook API and complain it breaks their apps too frequently.  Maybe it's changed recently, but I really can't get Facebook developers as easily as I should given the number of users they have, IMO. Facebook could be the web within the web.  I think there's money there. 

Michelle Greer

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