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The Valuation of the Intangible

I collected baseball cards as a kid as many others did, but I did it a bit differently.  I had all the rookie cards of the hot shots – Roger Clemens, Ken Griffey, Jr., Barry Bonds (180lbs. then), etc.  However, I had an entire binder dedicated to Nomar Garciaparra.  I would give up all my cards just to get any card collection, piece of a game used jersey, or shard of broken bat from the guy.  He was good, but probably not worth giving up a Mickey Mantle card for…but I would.  My dad asked me once why I valued Nomar so highly and I told him I loved how he ran to his position unlike Barry Bonds and his ticks when he was in the batter’s box.  It wasn’t anything to do with his triple crown – it was based on the intangible.

I look at Facebook’s acquisition of Instagram in the same light.  Every post I read analyzing the deal discussed the tangible: user base, revenue.  Facebook paid $1BN for 27M fans, 13 employees, and zero revenue.  That’s $37 per user.  I took a look at a few other buzzworthy acquisitions to understand how the Instagram/Facebook acquisition compares.  Microsoft paid $8.5BN for Skype.  If looking at cost per user metrics, the Skype deal was actually more expensive than the Instagram deal.  Microsoft paid $50 per user.  However, Microsoft bought more than just the users – it bought an ad platform, potential enterprise video conferencing platform, and the fact Skype’s domicile resided outside of the US as Cory Janssen pointed out on Quora.

Category

Deal

User base

Deal Size

Revenue?

Funding

Employees

Date

CPUser

Consumer Web

Fbook/Instagram

27MM

1BN

0

57MM

13

Apr-12

$37.04

Consumer Web

Google/YouTube

50MM

1.65BN

0

11.5MM

67

Oct-06

$33.00

Consumer Web

Microsoft/Skype

170MM

8.5BN

860MM

18.8MM

800

May-11

$50.00

AdTech

Yahoo/BlueLithium

NA

300MM

100MM

11.5MM

150

Sep-07

NA

AdTech

Google/Invite

NA

80MM

?

5MM

75

Jun-10

NA

AdTech

Adobe/Efficient Frontier

NA

400MM

60MM

6MM

300

Nov-11

NA

Games

Disney/Playdom

40MM

563MM

100MM

75MM

300

Jul-10

$14.08

Games

EA/Playfish

60MM

400MM

75MM

21MM

200

Nov-09

$6.67

*Most of this data comes from Crunchbase, Quora, and Wiki so consider it a sketch on the back of a napkin at a bar.  User base figures are at the time of acquisition

We can apply the same intangible reasoning when discussing the value of a fan, follower, GRP, etc.  Brands and Agencies see the acquisition of a Like differently.  Brand A may be willing to pay $10 for a fan while Brand B considers a fan worth $1.  The application of an intangible filter can actually optimize results.  Brands are starting to realize that a cost per Like model is too one-dimensional.  The industry is also trying to create a more apples to apples comparison of video reach metrics to offline with AOL and Google announcing reporting metrics based on GRPs.  The issue I have with GRPs is that is was a metric made up in the 70s and dumbs down Digital metrics.  Digital has the ability to track if the video was played, viewed, talked about, skipped, etc. and throwing those metrics out for GRPs seems counter-intuitive.  I asked my dad, who’s a CMO, at the dinner table what he values in advertising and his response was, “ROI – I want to see the impact in our bottom line.”  I also asked him what a GRP was and he said he didn’t care and to stop bugging him because he was watching the hockey game.

Whether it’s startup valuations or Adland, the market is focused more and more on the valuation of the intangible.  There’s a fine line between abstract, LSD – influenced Mad Man type of train of thought and logical, but intangible reasoning.  When evaluating Media, instead of boiling it down to the cost per X or old school metrics we need to find a better solution to show the connection and value of Media.  The key is making it dynamic enough to be able to change based on a Brand’s consumer base and the Media utilized.  All users aren’t equal, Media isn’t equal, and instead of universalizing everything we need to consider the intangible.

  • Mr. Bonds

    “Shard” of broken bat…chard is a vegetable. Also, Nomar never won a Triple Crown. Good post, though.

    • http://www.jaynepimentel.com/ Jayne Pimentel

      Apologies for my dyslexia…and you’re right about the Triple Crown. It was that other guy on the Red Sox – Ted Williams. Hope you’re doing well Mr. Bonds!

  • http://www.facebook.com/nathanlevi01 Nathan Levi

    I think Facebook bought Instagram to tell the world they mean business, and they like Google, can throw money at a situation to own a particular space.We also need to remember that their CEO isn’t even 30 so he’s bound to throw a few dodgy shots.

    Thinking practically though, Facebook’s business model is threatened by mobile. Ads on mobile just don’t translate that well. Facebook need to solve the mobile riddle somehow, and perhaps Instagram is part of the answer. Either that or Zuckerberg knows something we all don’t.

  • Johndoe

    $37.04 CPUser for Fbook/Instagram deal. The thing is it is really not that simple, because most of Instagram user, perhaps more than 80-90% are already a Facebook user as well.

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