May 14th, 2012
As Facebook prepares for its IPO later this week, the question of valuation, and the role of its gigantic (even by global geopolitical standards) user base is among the most contested issues.
Not everyone agrees on how many users Facebook has. Like most networks/media sites, the company has various ways of looking at users. Facebook reported 901 million monthly active users last month. It reported 483 million daily active users in its IPO filing.
And one person’s “active” user may be another person’s dormant or even spurious account. “Facebook’s IPO documents define ‘active’ users and finds that many of them may never visit the site. Facebook counts you as ‘active’ if your only involvement with the service is setting it up to republish your Twitter feed, or if you click ‘Like’ buttons but never log in to the actual service,” writes Cory Doctorow on boingboing, accusing the company of using “funny accounting” in its IPO documents.
Why does it matter? It matters to investors who want to buy and sell the stock and make money on it. Network valuations are heavily based on number of subscribers (number of people to sell advertising to.) That’s what makes a media company. For the same reason it also matters to advertisers, none of whom intend to reach anything like Facebook’s entire user base, but see the number as consumer validation of the importance of the platform.