The Big Idea: The Facebook Bubble

Article excerpt

Byline: Dan Lyons

Facebook sometimes seems invincible. The company has 600 million members and raked in $4 billion in revenue last year. But the social-networking juggernaut may be more vulnerable than it appears at first glance.

Think of it this way: Facebook has two assets, data and members. Data, by itself, is worthless. Facebook is betting it can create software algorithms to extract value from that data--essentially to perform a kind of techno-alchemy and turn zillions of meaningless bits into billions of dollars. Nobody knows if the company can really pull this off, but a lot of powerful investors, including Goldman Sachs, Russian VC firm Digital Sky Technologies, and most of the big-name venture capitalists in Silicon Valley, have bid the company's private valuation up as high as $100 billion. They did this based on a belief that in a few years' time, Facebook will be generating enough profit to merit that kind of valuation. …