Is Facebook Overrated?

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There is no guarantee, however, that people will embrace the advertising models that Facebook and MySpace are pushing. "How do you serve up ads in such a fashion that your young, hip audiences aren't turned off by it?" asks venture capitalist Jim Timmins of Pagemill Partners. Google faced these same worries in 2004 when it launched context-sensitive ads inside its e-mail program Gmail. When the company went public later that year, skeptics voiced similar concerns about the viability of an ad-supported model for its search engine. Google now trades at more than $600 a share and could earn $4 billion this year.

Which brings us back to the real question: Is Facebook worth $15 billion? If it goes public sometime next year, as is widely expected, potential investors need to ask, "How big can Facebook grow?" says Internet analyst Bob Peck of Bear Stearns, who pegged Facebook's value at $6 billion in August. "You want to buy low expectations," says David Trainer, president of the business-valuation firm New Constructs. Google went public amid widespread skepticism, but Facebook has been anointed by its boosters as the next Google, despite MySpace's bigger audience and deeper pockets. As is always the case with the Web, some investors are going to make epic amounts of money. Others won't.