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Thu, 27 Sep 2007 Analyst warns of dotcom bust

Microsoft's rumoured attempt to buy a slice of Facebook could be a danger sign

Sandra Rossi, Computerworld Australia

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Rumours that Microsoft is negotiating a stake in social networking site Facebook is proof the IT industry could be in the run-up to another bubble in internet company values, according to David Bradshaw, principal analyst at Ovum.

Responding to media reports that Microsoft is seeking a five to ten per cent stake in the social networking company at a cost of $300 to $500 million, Bradshaw said this would put Facebook's value at between $6 billion and $10 billion. Google is also rumoured to be a suitor.

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"We don't normally take rumours seriously, but there's so much smoke here that there has to be some fire," he said.

"And at up to $10 billion, that could be a very large fire. Indeed, it is such a large amount that it makes me suspect that we're in the run-up to another bubble in internet company values."

Bradshaw said Web 2.0 has become such a widely hyped term but it is obvious that greater collaboration between users mediated by the web is here to stay.

He said social networking is one element of this but only one - but other sites are more centred on collaboration.

"Indeed, two of the largest successes of Web 1.0 - Amazon and EBay - were successful because they mediated collaboration between buyers and sellers," he said.

"It's therefore my view that Facebook is no more than a step along the way and that there's something further to come. Maybe we need bubble 2.0 to burst before we can get to that - but let's hope not."

Bradshaw said there are still some problems with Facebook ranging from legal action over the alleged theft of intellectual property to the increasing concerns over protecting children against 'grooming' by paedophiles.

He said there is also increasing hostility in corporations to employees using social networking during business hours with some now blocking access.

"Longer term, we believe that social networking sites have to evolve further. Users need much better privacy controls, for example to protect against identity theft and stalking," Bradshaw said.

Founded in February 2004, Facebook is one of the world's most popular social-networking sites with about 42 million active users. Facebook has been growing strongly in the past 12 months. In December, it had about 12 million active users.

Facebook would be interested in using the cash raised from selling a stake for buying other companies, increasing its staff of about 300 and beefing up its technical infrastructure, the Wall Street Journal reported.

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