Russian roulette as 2% of Facebook stock goes for $200m

The Chicago Tribune reported a couple of hours ago that Facebook is to receive a US$200 million investment that values the social networking company at US$10 billion -- even though it has yet to turn a profit. The investment, by Russian company Digital Sky Technologies, is in return for a stake of just under 2 percent of Facebook's preferred stock. This is in addition to the US$400 million or thereabouts in equity investments which Facebook has received from Microsoft Corp., Peter Thiel's Founders Fund and venture capital firms Accel Partners and Greylock Partners.

To IP Finance this looks like a risky punt. While Facebook is admittedly hugely popular, its portfolio of IP rights doesn't appear to pose particularly high barriers to market entry; the more highly the brand is valued, the greater is the incentive to competitors to emulate it and to throw money into close competition. Further, while Facebook has 200 million users, around 70% of these are from outside the US. This means that the market reached by advertisers is relative diverse in cultural and geographical terms -- and many of its users are children whose financial spend and nagging power is relatively limited. There seem to be so many advertising-driven websites and online services these days and, with tough market conditions ahead, the seemingly endless rise in internet advertising spend is bound to come to an end, possibly causing the equivalent of the dotcom crash.