Finding value of a social networking website:

If you have a start-up on the web, how will you come to know the value for it? Let alone a start-up, it is difficult o measure the renowned social networking sites such as twitter or Myspace or linkedin or Facebook as in a brick-and-mortar company, a online company value depends on the way the site measures  customer visits and how they value a user and how useful it is for the site to do business. But isn’t it time to start comparing the big global social networks on something other than unique visitors and page views. I believe an effective way to value a particular user is based on the average Internet advertising spend per person in the country they live in. higher the spend, the more value the social network can get out of the user by serving them advertising and other products. What it means is that a visitor in India will not buy anywhere compared to a persons from the US or Europe. The online buying culture hasn’t seeped in yet in the developing world. Thus users in a handful of key countries only are worth far more in terms of revenue potential than those in the rest of the world.

We’ve begun to build out a model that looks at social network usage by country/region and compares that to available data on total Internet advertising spend in each of those countries. The model is then able to turn an apples-to-oranges comparison into an apples-to-apples comparison. The early results are surprising.

The ultimate financial value of any asset is, ultimately, what the market will pay for it. We have only a few data points to help us: Facebook and LinkedIn are worth, $850 million and $1 billion respectively, based on relatively recent valuations; Facebook and LinkedIn raised investments at those valuations). The last valuation of MySpace was just $500 million, back in 2005 when it was acquired by News Corp.

Any form of valuation as a bit of value premium and similar is the case here. The valuation by two different people can be different. Then whose valuation is most “correct?” It’s hard to say based on the data that’s been available to date, which is mostly just aggregate page view and unique visitor numbers. Based on worldwide unique visitors, for example, Facebook recently overtook MySpace to become the “largest” social network.

According to raw worldwide user number, the biggest social networks are Facebook, Myspace, Hi5, Friendster, and Orkut in that order. But when you apply the model that is mentioned, which takes into account where users live, the rankings change substantially. MySpace is by far the most valuable social network based on available data. A competitor like Orkut is worth only 1/20th of MySpace, even though it has nearly 1/4 the number of users.

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