The Value of a Piece of Facebook. Andrew Ross Sorkin, 27 Septermber 2010. “Minority investment evaluations aren’t real,” David Heinemeier Hansson, a partner in the software developer 37Signals, contended on his blog, adding that Facebook’s secondary market valuation was “entirely based on what starstruck minority investors have paid for a tiny slice of the company.”
That prompted Joel Spolsky, another software developer, to reply that Mr. Hansson’s post was “so economically bizarre and incorrect that I don’t even know where to start. It’s like you wrote a blog post arguing that it is incorrect to refer to a five-foot-tall boy as five feet tall because he’s often sitting down. Every single day every single public company in the world is valued by the last share traded, usually for a tiny fraction of the company.”
In truth, Mr. Hansson is probably right. With so few shares available, it’s hard to extrapolate Facebook’s real market value . . . (The New York Times).
Hacker News on: Facebook is not worth $33 billion. Joel Spolsky, __________ days ago. I hate to leap in with what seems like an ad-hominem attack on the 37 signals, but their utter and complete misunderstanding of all the basics of business is starting to grate on me, and I’m wondering if it has anything to do with Chicago.
Facebook has certainly figured out how to make money off of 500,000,000 users. And as they optimize, they will make a lot more money. When they figure out how to make another DIME off of every user, they will instantly be making another $50,000,000 a year… in pure profit. How much profit will 37signals make if you figure out how to make another dime off of every customer? Eh David? Facebook works on the theory that when you have a lot of people, you don’t have to make as much per person, because the amount of money you make is the number of customers times the amount of money you make off of each one. Again, that pesky multiplication.
It’s weird, it’s like in Chicago they don’t have multiplication or something (Hacker News).