But the 22-year-old founder of the Internet’s second largest social-networking site also could turn into the next poster boy for missed opportunities if he waits too long to cash in on Facebook Inc., which is expected to generate revenue of more than $100 million this year. The bright outlook is one reason Zuckerberg felt justified spurning several takeover bids last year, including a $1 billion offer from Yahoo Inc.
“We clearly have a bias toward building rather than selling,” he said. “We think there is a lot more to unlock here.”
The build-or-sell dilemma facing Zuckerberg is becoming more common among the precocious entrepreneurs immersed in the latest Internet craze, a communal concept of content-sharing that has been dubbed “Web 2.0.”
Besides Facebook, other Web 2.0 startups frequently mentioned as prime takeover targets include online video site Metacafe Inc. and Photobucket Inc., which has emerged as one of the Internet’s busiest destinations by hosting personal videos and photos that are routinely linked to top social-networking sites like MySpace and Facebook.
These sites find themselves at a critical juncture reached several years ago by the Internet’s first big social-networking site, Friendster.com, which chose to stay independent instead of selling. That decision is now regarded as one of Silicon Valley’s biggest blunders.
Web 2.0 startups have emerged as hot commodities because they are drawing more people away from television, newspapers and other media traditionally used for advertising. Online video channels and social networks, a catchall phrase attached to sites that enable people with common interests to connect and deepen their bonds, are particularly hot.
Deep-pocketed companies are now angling for a piece of the Web 2.0 action — a quest that already has yielded a couple big jackpots, helping to propel the sales prices of startups to their highest levels since the dot-com boom.
News Corp. paid $580 million in 2005 to buy MySpace, the largest social-networking site, and Google Inc. snapped up video-sharing pioneer YouTube Inc. for $1.76 billion late last year.
“I’m surprised a lot more companies haven’t already been bought,” said Reid Hoffman, a veteran Silicon Valley executive who has invested in many startups, including Facebook. “My hunch is the deals are only going to get more expensive in 2008 and 2009.”
If the dealmaking market continues to heat up, Zuckerberg will end up looking smart for rebuffing Yahoo and other suitors that included Microsoft Corp. and Viacom Inc.
Assuming Facebook hits its financial targets, the Palo Alto-based company should be able to command a sales price well above $1 billion or pursue an initial public offering of stock in the tradition of Google, Yahoo Inc., eBay Inc. and Amazon.com Inc. — a group of Internet icons now worth a combined $250 billion.
A Facebook sale or IPO is bound to happen eventually so the startup’s early investors, consisting mostly of venture capitalists, can realize some profits. Facebook has raised about $38.5 million since Zuckerberg started the site in 2004 while he was still a sophomore at Harvard University.
Marc Andreessen, who made a fortune during his 20s as co-founder of Web browser pioneer Netscape Communications, is among those who believe Facebook is going to become even more valuable during the next year or two.
“Facebook is doing the smart thing. If you are in a big market like social networking, you are usually better off waiting,” said Andreessen, who is now chief technology officer for another social-networking startup, Ning Inc. Had MySpace remained independent, it would probably be worth $5 billion now, Andreessen estimated.
Friendster Inc. turned down a takeover bid from Google in 2003. Founder Jonathan Abrams and a few investors reportedly would have received $30 million in stock that would be worth about $1 billion today.
Since then, Friendster has lost its Internet buzz and been through a succession of CEOs.
In January, it attracted 1.3 million U.S. visitors, leaving it far behind MySpace (61.5 million visitors) and Facebook (19 million visitors), according to data from comScore Media Metrix.
“The world is filled with companies that waited too long to sell and missed their window of opportunity,” said Ken Marlin, a technology investment banker in New York.
While Facebook is profitable — it struck its first major financial partnership last summer with Microsoft, which reportedly guaranteed to deliver about $200 million in ad revenue through 2008 — Zuckerberg still leads the ascetic lifestyle of a college student.
He dropped out of Harvard in 2004 to move Facebook to Silicon Valley and now employs 200, but says he keeps little more than a mattress in his apartment a few blocks from Facebook’s office. He walks to work every day, usually wearing Adidas sandals.
Being comfortable is important because he tends to spend long hours at the office.
“For now, I just think it’s very important to have a good sense of direction about where we are going,” he said.
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