When Facebook was first introduced to the world of college students, who could have expected the rise of social media networks to be one of the biggest success stories in business? From Instagram, to FourSquare to Twitter, these social networks of some of the most highly valued businesses, and there is still more to find out.
Determining the value of a social media network is the same process as any other business, it’s decided by the company’s revenue. So, how do these social media sites generate a substantial revenue? Advertisers. So, what makes this process really interesting is that social networking sites can charge a premium from their advertisers because of the value of a user. Since sites like Facebook and FourSquare can collect a lot of information about a user, they can offer advertisers very targeted audiences. Advertisers are willing to pay a premium for a user, especially one who may be very interested in their product.
So, what is an average user worth? We say that advertisers are willing to pay a premium, but what is the actual price? Sometimes, the stock market values a user as $100 all the way to $1,000. A Facebook user can typically be valued at about $174. However, if you’re a BMW Fan on Facebook, you’re valued at $1,613. Whereas a Coca-Cola fan is worth $70, the difference is based on interaction, engagement, and data available.
The value of a user is important to a company, because it ultimately helps them generate additional revenue from advertisers. When it came time to go public, the IPO for each social networking site is definitely unique. Plus, for companies like Instagram who were acquired by Facebook, it’s interesting to see what they would have had as their IPO.
To learn more about the valuation of social media networks, and how to properly value a company read Social Media Valuation by Appraisal Economics here.