Arrington tries to create a model to value social networks

Michael Arrington of Techcrunch has come up with a model to try and value social networks

http://www.techcrunch.com/2008/06/23/modeling-the-real-market-value-of-social-networks/

It involves looking closer at where each of the main networks has usage numbers and looking at the average Internet advertising spend per user in each of those territories (ie a valuation based on where your numbers are strong and if the market is bouyant in those areas)

He does admit the model is somewhat flawed as the modelling is based on some one dimensional data ... but he still pushes it through.

Personally I think he has ballsed this one up. I love Arrington and read his work religiously ... but this is way off mark.

It assumes:

1) Social Networks are an effective place to place display advertising. (unproven)
2) It assumes advertisers value eyeballs over anything else (they don't)
3) It doesn't take into consideration how people are using each network and the advertising contexts each offers (ie Linked In is fantastic for a higher yield C suite target in a relevant environment, whereas myspace has a load of 14-17 males which can be reached elsewhere)
4) Unique audience (ie eyeballs they have that are tough to find elsewhere)
5) Engagement (Unique Browsers combined with page views combined with time spent and repeat traffic)
6) Growth (where is it coming from - what areas, what demos?)

Personally, neither myspace or Facebook are doing a particularly good job of bringing in money. They are both probably the largest single sellers of remnant cheap inventory and in doing so are doing a great job of devaluing their audience. I don't think this is just limited to Australia either, as the consensus amongst the marketers at Ad:Tech SF seemed to be the same. Yes they have shedloads of users, but that offers them minimal advantage because this doesn't alone appeal to advertisers.

These hypothetical valuations are nice and make for interesting reading - but they completely miss the mark. The challenge for FB and myspace isn't just finding the killer application, it's finding the killer spin that brings in the advertising dollars they want more than anything.