The Russians are coming! The Russians are coming!
Based on a report in The Wall Street Journal, Digital Sky Technologies, a Russian investment group wants to put $200 million into Facebook for preferred stock. The transaction would value the social network at $10 billion, a price which is impossible to justify. Under the proposal, Facebook’s common stock would have a lower value.
By most estimates, Facebook will have $500 million in revenue this year and is unlikely to do much better than break even. Despite the fact that it has well over 200 million users world, the site and other social networks have had little success bringing in sales that come close to matching their sizes.
Advertisers continue to complain that targeting messages to users who cannot easily be grouped by demography or interest is not an effective way to invest marketing dollars.
There have been several reports that Google (GOOG) wants to cut its advertisng arrangement with News Corp’s (NWS) MySpace from $300 million a year to less than $75 million, a sign that the search engine firm cannot make its advertising model work well on MySpace.
Douglas A. McIntyre
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