Facebook's Cheesy Ads: Do They Make it Worth $100 Billion?

​A couple of weeks ago, Business Insider, the puerile gossip 'n' lies site run by disgraced, bubble-era Internet-stock analyst Henry Blodget, informed us that a "source close to Facebook employees" said in an e-mail to the site that the company would go public within weeks. The article's author, Nicholas Carlson, went on to disavow the rumor with which he had opened the article, leaving readers to wonder why he had mentioned it at all. Oh, right -- to draw traffic.

Turns out the story was wrong! That is, the part of the story that spread the rumor, not that part that disavowed it. The Wall Street Journal, presumably relying on something a bit more solid than an e-mail from a Facebook marketing assistant's second cousin, reported Monday that the company would hit the public markets in the middle of next year, as many people had expected. It's thinking about selling 10 percent of itself for $10 billion, valuing Facebook at $100 billion.

Which is really something when you consider how much of Facebook revenue comes from sales of the cheesiest, spammiest advertisements on the Internet.

That's not to say the valuation is off -- it's to say that the secret to success online is scale.
Online ads are cheap, which is why expensive sites that try to cover the news or perform other labor-intensive services have such a hard time of it. A site with hundreds of millions of members creating their own content for each other can sell lots of cheap ads to operators of scammy Forex-trading schemes and peddlers of dubious dietary supplements, and make some good coin doing it.

Facebook founder Mark Zuckerberg, of course, will benefit the most. He reportedly owns about a quarter of the company, which means his post-IPO stake would be around $24 billion. Several other current and former Facebookers would make out pretty well, too, but only in the single digits of billions. One of them is Sean Parker, co-founder of Napster, the file-sharing service that helped destroy the recording industry (so, he deserves the $4 billion stake he's estimated to be in line for in the IPO.) It's not known how much of a stake COO Sheryl Sandberg has in the company, but we'll find that out -- along with lots of other stuff -- when Facebook makes its public filings.

Any way you look at it, a $100 billion valuation is huge for a web property of any kind -- scale or no. It's twice as big as Hewlett-Packard's valuation, and about four times the size of Dell Computer's. But it's less than a third of Apple's market cap.

In general terms, the biggest risk is brand. Facebook is an unqualified success, but it's still a web property. And web properties have a history of fading when the next big thing comes along. MySpace was horribly mismanaged and Facebook isn't, but Facebook is still potentially subject to changing tastes and trends, just as MySpace was.

If something like Google+ (or something else we haven't heard of yet) is able to make inroads on Facebook's turf, Facebook might end up losing some of that Açai-berry money.

Dan Mitchell has written for Fortune, the New York Times, Slate, Wired, National Public Radio, the Chicago Tribune, and many others.

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