My Misjudgment of Facebook in 2006

In 2006, I was working on a new ad network business that used social network data for targeted advertising. We met with Facebook, a small company then, to explore potential partnerships. However, based on their metrics, I was convinced that Facebook would never become a billion dollar company. I was wrong!

• Facebook was growing rapidly but had low CPMs (revenue per thousand ad impressions).
• Their monetization strategy seemed superficial, with low-quality ads.
• I projected a maximum of 5 billion ad impressions per month, resulting in an estimated valuation of $150-300 million.

The Misleading Metrics

My reasoning was based on data from other social networks, such as MySpace, Friendster, and Hi5, which had similar low CPMs. I was certain that Facebook, a college social network, wouldn't grow beyond those limits. It was a classic case of pattern matching and applying historical data to a completely new scenario.

• I failed to recognize Facebook's potential to evolve beyond a college social network and reach a global audience.
• I didn't anticipate the massive growth in user engagement and page views, which would ultimately drive revenue.

Yahoo's Interest in Acquiring Facebook

While I was making my calculations, Yahoo was also assessing Facebook's value for a possible acquisition. Their projections for Facebook's user growth were remarkably accurate, but they underestimated the potential for CPMs to increase beyond the $0.25 range.

• Yahoo's slide on Facebook projections highlighted the potential user growth and revenue potential.
• However, they were overly optimistic about the increase in CPMs, which ultimately proved to be much lower than anticipated.

The Fundamental Flaw in My Reasoning

The biggest error in my reasoning was underestimating the transformative power of Facebook's product and its ability to reach a massive global audience. I was limited by my understanding of the social networking landscape at that time and failed to envision the potential for Facebook to become a ubiquitous platform.

• My projection of 3-5 billion pageviews per month was far off the mark. Facebook now boasts over 1 trillion pageviews per month.
• I was correct about the low CPMs, but that didn't matter because I was wrong about the enormous user engagement and pageviews.

The Importance of Open-Mindedness

This experience taught me a valuable lesson: be open to new and disruptive companies that challenge conventional wisdom. Don't get bogged down by historical data and expert opinions when evaluating a company's potential. Look for the "ugly ducklings" that have the potential to transform industries.

• Facebook's success demonstrated that historical data can be misleading when it comes to disruptive innovation.
• It's crucial to remain open to new ideas, think outside the box, and embrace the unknown potential of emerging businesses.

Lessons Learned

This experience highlights the importance of being open-minded, challenging assumptions, and recognizing the transformative potential of disruptive innovations. In the world of startups, business models are constantly evolving, and it's essential to adapt to these changes.

• Focus on building a strong user base, as it's the foundation for success in the digital world.
• Don't be afraid to experiment with different monetization strategies to find the best fit for your company.

Conclusion

My misjudgment of Facebook was a valuable learning experience. It taught me the importance of being open-minded and embracing new ideas, even when they challenge existing patterns. It reinforced the notion that exceptional companies can defy historical trends and create new markets. The ability to recognize these disruptive companies and invest in their growth is crucial for success in the world of startups and investments.