The Downside

According to the Wall Street Journal, Yahoo is rumored to be buying Facebook for 1 billion dollars. That’s right, 1 billion. (Full disclosure: I own stock in Yahoo.) Bambi Francisco confirms the rumor, but says a deal is still a ways off.

Why, one may ask, would Yahoo need Facebook? Perhaps they are admitting the failure of Yahoo 360. 360 was very successful in duplicating the basic features of MySpace and Facebook, but it just has no spirit, no personality of its own. Perhaps it’s because Yahoo has become so staid and stodgy and vanilla, so the trendsetters, the opinion-leaders go somewhere else to express themselves.

Further, Yahoo is trying to block out competitors. FB is rumored to be talking to MSN as well, and Yahoo certainly wouldn’t want Billy Gates to get his hands on Facebook. If Facebook is shopping itself around to the major portals, Yahoo has no choice but to throw their hat in the ring and try to place the highest bid, whether they really want Facebook or not.

I think Yahoo will showcase Facebook in an attempt to regain their sense of cool. They will leave 360 up to cater to the grandmas and Yahoos that have adopted it. If you’re on 360 now, don’t count on too many new features being added if and when this deal goes through.

What worries me is that I don’t understand is how Yahoo will ever turn a profit on FB. As a business, it would have to bring in 100 million in operating earnings (not revenue) just for Yahoo to see a 10% annual return on their investment. Can Yahoo make money on this deal, or are Bubble 2.0 economics going to their heads?

This entry was posted on Thursday, September 21st, 2006 at 11:18 am and is filed under Internet, Media. You can subscribe via RSS 2.0 feed to this post's comments. You can comment below, or link to this permanent URL from your own site. Your comments will appear immediately, but I reserve the right to delete innapropriate comments.