An offer of funding from a Russian investment group has surfaced just as Facebook is becoming more involved in a corporate project to buy back stock that is currently in the hands of employees.

In addition to the $200 million in funding at the $10 billion dollar valuation level in a preferred stock deal, the Russian firm (Digital Sky Technologies) has also offered to buy an additional $100-$150 million of common stock at a $6.5 billion valuation.  This offer would be used to buy employee stock, and the size of the purchase would depend on how much stock employees wanted to sell.

There is significant discussion among observers over whether or not the money from Russia was a sign of desperate times at Facebook. There are good points being made on both sides of this discussion. As with most business deals, though,  both the truth and the devil are in the details, and it is almost certain that no one will ever see the fine structure of the Russian offer.

Much of the negative thoughts focused around the monetization and valuation issues. The basic question is whether a social marketing site should be highly valued as an investment if it has no track record in monetization and no clear business model for making a profit. This camp says that site visits are nice, but financially meaningless if they are not leveraged into income.

The positive side sees Facebook as a goldmine waiting to happen. With millions and millions of active users every month, the potential for profit is clearly there. As an article in Business Insider says, “We believe Facebook could be profitable tomorrow, taking the MySpace approach and skinning their site for next weekend’s big movie release. But Mark Zuckerberg doesn’t want to do that, and so right now Facebook is experimenting, trying to find other ways to make money.”

Facebook is not alone in wrestling with the concept of Web monetization. Nor are all of those doing the wrestling startups in new fields. Industries as venerable as newspapers are struggling to find a way to make money on the Web. Those of us who virtually live on the Web forget how new it is, and rarely notice how much it has changed our society. A lot of very intelligent people are struggling with exactly how to extract money from the World Wide Web. There is no reason that it should be any easier for Facebook than it is for the New York Times.

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Entry was posted on Saturday, May 23rd, 2009 at 3:51 pm under Internet, Social Media.

Read more entries by Michael W. Jones.
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