Eight Billion Reasons Yahoo Didn t Buy Facebook
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Eight Billion Reasons Yahoo Didn't Buy Facebook
Summary
Facebook and Yahoo had been in talks for much of the year regarding a potential sale. Social networking sites have seen fluctuating market values as various platforms change hands. One notable acquisition was News Corp's purchase of MySpace for $580 million in 2005. This set a precedent, followed by NBC Universal's acquisition of iVillage for $600 million earlier this year.
The Landscape of Social Networking
Social networking sites allow users to create and share content with friends and the public. Facebook distinguishes itself from MySpace by targeting post-high school users and connecting people through college, company, or regional networks. Unlike MySpace, which focuses on social, entertainment, and artistic interests with features like 'artist pages,' Facebook aims for a more mature user base, boasting over ten million members compared to MySpace's 145 million.
The Facebook Advantage
Facebook's focus on actual communities makes it a robust connectivity tool. Users can easily find and connect with others within their networks, making it highly effective for building interest-based groups. However, its relevance beyond college remains in question. MySpace, on the other hand, needs to mature its advertising approach and manage commercial media postings.
Market Dynamics and Strategic Moves
Facebook received interest from several companies, including Microsoft and Viacom. Microsoft struck a deal with Facebook to sell banner ads and sponsored links, though this method is seen as outdated by some analysts. Meanwhile, Google partnered with MySpace, agreeing to pay at least $900 million in shared ad revenue, becoming the site's sole search provider.
Google's acquisition of YouTube increased pressure on Yahoo to finalize a deal with Facebook. Yahoo initially deemed Facebook too costly at $1 billion, later nearing an agreement at $800 million, but offers above $1.6 billion were rejected. Facebook now claims its worth exceeds $8 billion.
Yahoo's Strategic Position
Yahoo faced significant stakes in acquiring Facebook, which would have transformed its efforts to build a "community." Yahoo already offers features similar to those on MySpace and Facebook but lacks their social appeal. Yahoo's acquisition strategy focuses on smaller companies like Bix, MyBlogLog, and Kenet Works, which complement existing properties such as Flickr and Delicious.
Shifting User Loyalties
The social networking landscape is evolving, revealing fickle user loyalty. MySpace users are migrating to platforms like Facebook and YouTube, with average visitation time dropping significantly. Despite this, MySpace still dominates the social networking realm, capturing 82 percent of visits to the top 20 sites.
Yahoo's attempted purchase of Facebook would have been a high-stakes gamble on a trend that may shift rapidly, much like Friendster's decline. The existing Microsoft ad deal presents a challenge for Facebook in finding a successful advertising model. In this volatile market, Yahoo's inability to close the deal might prove beneficial.
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