Many of my favorite blogs always note that NewsCorp bought MySpace for $580M. Given MySpace’s 27 million users (at that time), bloggers calculate 1 user=$21. This metric is used to justify other websites’ valuations.
But it’s not true!
I was a shareholder, and the fact is NewsCorp bought InterMix for $580M. InterMix had many highly profitable divisions, from gift card sites to office supplies, and had a public marketcap of $300M long before they ever created MySpace. Accounting for the goodwill on NewsCorp’s balance sheet, one can estimate NewsCorp really paid about $200M for MySpace. That translates to about $7.40 per MySpace user. You have to hand it to Rupert Murdoch, he got the deal of the century.
$7 is a bit less than $21
The point is, bloggers cannot use the $21/user metric to calculate the value of websites. $7 is much more accurate math on the MySpace deal. All of my favorite Web 2.0 blogs seem to make this valuation error. See examples at: GigaOm, VentureBeat, TechCrunch, and ReadWriteWeb. If enough people repeat this false $21/user statistic, perhaps companies will really begin paying this much for websites. And we wonder how bubbles start!