Global Strategy - blog

In November last year, I criticized the logic with which some people calculated the valuation of Facebook corporation to be 15 billion dollars (see an original article as well as a further comment and a related article). I suggested that perhaps the fundamental value of this corporation could more realistically lie between 3-5 billion. Now, an interesting new piece of analysis arrived today: Valleywag news site calculated Facebook's current value to be 2-3 billion.

The academic world is often considered to be isolated from the real world. However, now that the world is struggling with an unprecedented financial crisis, one must (at last) pay attention to the role that academic theories may have in the real-world developments.

The success of technology based firms hinges greatly upon their strategic fitness within two key domains: output markets and technology. First and foremost, the better the firms are able to develop and deliver valuable outputs (i.e. products and services) to customers within a focal target market, the better chances of success they have. Market based success is a function of an optimal market position and coverage and thus the demand potential underlying the targeted market. However, the value-added that that technology based firms ultimately deliver to their customers is based on an extensive and complex platform of technological knowledge and routines. Technology thus represents the inputs to a firm's productive process, whereby routines are required to turn the technological-scientific knowledge into tradable outputs that are perceived valuable by the customers. Despite normal mechanisms of market-based competition, much of competitive racing actually takes place in the technological domain.