Good news, Piczo is worth $200 million

$200 million, $5 million, evidently that's all the same in the world of TechCrunch financial models. The well-known technology blog has issued a follow-up to it's 2008 post about the valuation of the top 27 social networks, and the new version is just as absurd as the first. I can't argue too much with the top 2 spots as Facebook and MySpace are obviously the two most valuable companies on the the list. The exact valuation can probably be debated 10 ways to Tuesday, but I don't think you'll get much argument about their place atop the rankings.

The rest of the list has big issues. Most notably, it's simple to a fault. In fact, to say the model is simplistic would be the understatement of the year. To get the valuation the TechCrunch team did two things: 1) they looked at any publicly available information on valuation (Facebook, Bebo, etc), and 2) they used Comscore data to make a giant assumption about audience and advertising revenue. Both are flawed for various reasons, but most notably is that the success of one company (e.g. Facebook) cannot be applied to value a much lesser competitor (i.e. Piczo).

The simplistic way of valuing these companies leads to obvious problems:

1. LinkedIn has a lower valuation than Twitter. Really?! The profitable LinkedIn that brings in over $100 million in revenue is less valuable than PR-heavy Twitter that has yet to make a meaningful dime of revenue. I understand investing on potential, but someone please explain to me how that makes any sense.

2. Piczo is worth $200 million. Excuse me? Is this the same Piczo that I worked for for 15 months? Look, I met a lot of great people and learned a lot, but even on its best day, Piczo was worth maybe $50 million. At the end, Stardoll picked up the assets for what had to be next to nothing. I'm thinking less than $5 million. So you would have thought that TechCrunch would have done some basic research to weed out the obviously overvalued companies on their list.

3. All users are not created equal. A big flaw in the model is that it treats all users as if they are monetizable in some way. This could not be further from the truth. Aside form geography, demographics also play a key role. In other words, that 13 year old girl from Norway isn't worth quite as much as the 22 year old in the US. That seems pretty obvious, but the TechCrunch model ignored it completely. That of course led to the Piczo problem previously stated. I know first hand how un-monetizable most of those users were.

4. Far flung enterprises prove to be difficult. By that, I simply mean that companies doing business in dozens of countries may have 10 million unique users per month, but only have 500K in any one country. I'm not sure if TechCrunch specifically looked at the country of origin for traffic, but that's a key piece of the analysis. Again, at Piczo we had users in every country from the US, Canada, UK, Germany, Norway, Turkey, Australia, etc. So we only had a small percentage of users that could be monetized via advertising and that proved to be especially challenging.

The bottom line is that throwing out a headline like Modeling the True Value of Social Networks should not be taken lightly. The word "true" means that there should be some solid rationale behind said valuations. That's definitely not the case here, and I expected better out of the annointed king of tech blogs.