The CIO Report
Doug Laney
Research Vice President, Gartner
With all the hype about the imminent IPO indicating the public will value Facebook at $85 to $95 billion, it’s interesting to consider how much Facebook in turn values the public. Disclosures in the company’s S-1 filing along with data from other public sources reveals a raft of metrics about how many users, pages, “Likes,” apps, messages and other forms of activity Facebook captures about us. Applying emerging techniques that map these information-related volumetrics to Facebook’s actual financials and anticipated market valuation can help quantify the economic value of information.
The results show that you are worth about $81 to Facebook. Your friendships are worth $0.62 each, and your profile page could be valued at $1,800. The value of a business page is worth approximately $3.1 million. Put another way, Facebook’s nearly one billion users have become the largest unpaid workforce in history.
More to the point, Facebook needs a way to quantify the value of its data and the intrinsic value of its information assets. In this era of big data, represented by the opportunities of burgeoning data volume, velocity and variety, most organizations are fast becoming information-centric. All businesses generate, capture and collect data, and increasingly, most are seeking ways to monetize it. Monetizing information doesn’t necessitate selling it outright, but it does demand discipline around considering, managing, leveraging and ultimately valuing it just as any traditional asset.
The Economics of Information
The concept of information economics, or infonomics, enumerates a variety of benefits to quantifying information’s value and even goes so far as to recommend that organizations create internal supplemental balance sheets that include information portfolio valuation. This is important to CIOs as they recognize the mission-critical importance of information to their organization, realize that information has probable future economic value even before it’s used, and seek to protect that investment based on its true worth.
Ultimately, contrasting the potential versus realized economic value of your information assets is a way to encourage, budget, and justify IT and business initiatives. Facebook’s pre-IPO disclosure gives us more than a glimpse at the invisible, but yawning, value gap that exists in most organizations and an example of a business model devised to close it.
In its financial disclosure, Facebook reported $3.71 billion in 2011 revenue on $6.6 billion in assets. How much of the reported balance sheet assets are composed of its information assets? None. Even in the midst of the information age, generally accepted accounting practices based on SEC-defined reporting standards that predate the use of information technology still generally preclude recognizing the value of information — even for information-based businesses.
As early as 2000, issues around nonreportable intangibles such as information and knowledge assets rose to the level of congressional interest. In the Hearing on Adapting a 1930s Financial Reporting Model to the 21st Century, then-Arthur Andersen partner Steve Samek testified that “our current measurement and reporting systems in the United States do not capture emerging sources of value…[and] can exacerbate business risk and stock volatility,” and because “physical assets have tended to diminish proportionately in value…the gap between market and book value…has turned into a chasm.”
The Financial Value of Facebook’s Information Assets
The value of all the information Facebook collects is in the hinterland between its reported balance sheet book value of $6.6 billion and the anticipated post-IPO market value. Facebook is a pure information-based business; it doesn’t buy, make or sell anything else. Using Facebook’s own conservative valuation of $75 billion, its information value gap is more than $68 billion.
What information has Facebook collected from you and me? Facebook reports it has 845 million Monthly Active Users (“MAUs”) as of December 2011, up from 608 million in 2010 and 360 million in 2009. Facebook claims users punch the “Like” button or post a comment 2.7 billion times per day. Estimates suggest about half of those are “Likes” and half are some form of written content. Based on Facebook’s recent trajectory, this extrapolates to 2.11 trillion pieces of monetizable content collected during the past three years. Facebook’s filing also discloses that it has 37 million pages with 10 or more “Likes,” while other sources indicate Facebook hosts nearly 22,000 business pages. Its 845 million users, each with an average of 130 friends, equates to 109 billion friendships. Facebook’s S-1 corroborates this figure as “over 100 billion friend connections.”
Dividing Facebook’s 2.11 trillion pieces of content into this market-to-book valuation differential indicates that each “Like” you click or item you post will be worth about $.03 to Facebook or its future investing public.
Because Facebook actually generated $3.7 billion on these information assets last year, the realized value of its information portfolio is only 1/20th its investor-anticipated potential. Facebook and its investors plainly expect this gap to be closed through its information monetization capabilities. Information value gaps aren’t unique to Facebook — Google and other information-centric businesses experience the same gaps.
Consider what it would cost using traditional methods to survey nearly a billion people about 2,500 of their individual interests. Certainly it would be more than $81 per person. Facebook’s clever, though hardly unique, business model enables it to avoid paying for this information. Facebook users (its exclusive content factory) spend a total of 9.7 million minutes per day on the site. Using the current U.S. federal minimum wage of $7.25 per hour, Facebook receives $1.2 million per day in free labor.
Most organizations do not benefit from a global pool of data-churning staff and a pure information-based business model. But to remain competitive, they must continually become more information-centric. This starts with CIOs considering what sources of information are available both internally and externally, envisioning how this information can be deployed in transformative ways, and valuing and managing information as an actual corporate asset.