Yesterday in the CrackBerry Forums, a member asked me to comment on the possible value of BBM, presumably as a standalone asset that BlackBerry can monetize on its own.
BBM is a mobile-only app with many purposes. First and foremost it’s an IM app, and arguably the best mobile IM app on the market. But it’s now also a video chat and voice chat app. And depending on what else BlackBerry adds to the mix, it could become a social network via BBM Channels.
One very common valuation metric is price per user, or value per user. Sometimes this value comes from an acquisition like Facebook buying Instragram, or eBay (and then Microsoft) buying Skype. Other times it is based on venture capital investments such as SnapChat’s rumored $800 million valuation. Another option for valuation is to look a publicly traded company (which we’ll do next).
So let’s look at a few examples.
First up is Facebook itself. They are publicly traded, and the mega giant of social networking and they actually do sell ads to generate huge revenue. Last quarter 41% of ad revenue came from mobile, so there is no question Facebook is becoming a mobile business very fast. They have 1.15 billion monthly active users and a market value of $83 billion. So they’re currently worth about $72 per user.
Next up is Instagram. They were bought by Facebook for a reported $1 billion. But it was a cash and stock deal, and Facebook stock declined by the time the deal closed, but let’s go with the value at the time the deal was negotiated. A billion bucks. Instagram had about 30 million users at the time, so Facebook paid $33 per user. I think it makes sense to value Instragram at a lower per-user number because it will inevitably become just a service on Facebook, and it probably didn’t bring in a lot of new users to Facebook. Most users were already using the social network.
What about the communication market? Skype was originally sold to eBay, but then eBay unloaded it to Microsoft for $8.5 billion. At the time Skype had at least 663 million registered users, but we all know registered is not the same as active. Either way, Microsoft paid about $13 per registered user. Assume half of the accounts were not really being used, so maybe $26 per actual user?
YouTube is another social media giant, and Google bought it in 2006 when the video network had about 20 million unique users per month. So the $1.65 billion valuation works out to about $83 per monthly user. YouTube was obviously just a desktop web destination at the time, but it’s another portal that is becoming massively mobile.
Waze is another social app (in the mapping market) to be acquired by Google. It had approximately 50 million users and Google paid an estimated $1 billion, putting the per-user value at $20. Again, it seems reasonable to me that most Waze users already use Google services, so Google is really buying a new service not a bunch of users. That should lower the per-user value and sure enough, Google didn’t value Waze users nearly as high as Wall Street values a Facebook user.
Let’s stop and think about this.
Each example I gave above is from the leader in a particular market. Facebook, Instagram, Skype, YouTube and Waze ... these guys are all the top dogs in their respective market. Top dog status is worth more.
Is BBM top dog? No. They lost that position to WhatsApp by being too damn slow to move cross platform. So the big question becomes ... can BBM reclaim the throne? A lot of people think they can. I think they stand a chance. And they’re going about it the right way by making BBM free on iOS and Android. If they can get from 60 million BlackBerry users to 200 million cross-platform users then I think we’re talking about a very interesting scenario which would really crank up the value of the network.
Can BBM reclaim the throne? A lot of people think they can
Another thing that makes a network worth more is its size. Metcalfe’s law states that the value of a network is proportional to the square of the number of users. This means a network with 10x more people in it is worth 100x more.
Conflicting with Metcalfe’s law we also have to consider growth potential. A young network that is top dog in an important, emerging industry (like YouTube when Google bought it) is bound to have much more growth potential than a mature leader (like Facebook today). So a buyer may be willing to pay more per user even though the network is small. The buyer is paying for future opportunity.
Where does all this leave BBM?
BlackBerry still has a decent chance to capture the #1 market position in mobile IM. They have, in my opinion, a much smaller chance of turning BBM into a valuable social network filled with content like Facebook. They have a much better chance, if they execute well, of overtaking Skype in terms of being the best overall communication platform for mobile.
BlackBerry still has a decent chance to capture the #1 market position in mobile IM
If they do this, and only if they do this, I think we could start talking about BBM having a value somewhere in the same vicinity as some of the other companies mentioned here. Let’s use $50 per user as a nice round number. So if BlackBerry can achieve 200 million users and reclaim top dog status, can we say it’s worth $10 billion (double the current market capitalization)?
Perhaps. But BlackBerry is a public company who’s revenue comes primarily from hardware. This means that over the next year or two, at minimum, Wall Street will value the business based on its actual reported results. Ironically, if the company was a startup with no hardware business and an equal number of users, it would probably garner a higher valuation.
Food for thought? Sound off in the comments.