Valuing a social network

PhotonQ-Young solar System
Image by PhOtOnQuAnTiQuE via Flickr

Social networks have value but are difficult to value. How do you place a value on Facebook? Or Twitter? These sites have little or no monetization and yet they are worth millions for having a highly engaged audience.

In doing some research to write about business valuations for Venture Hype, I stumbled across an older blog about social network valuation, written by Avi Muchnick, the creator of I’ve seen the occasional Worth1000 image here or there and they were humorous, but I confess that I never really gave it much thought. But after reading Muchnick’s blog, I have become a big fan of the entrepreneur.

In his blog (written in December 2006 but still relevant today), Muchnick describes the challenge of valuing a non-monetized social network and he presents an idea — which he calls Orbital Theory — that can help to discover a dollar value to the network. He describes social network users as similar to celestial bodies in orbit around a core. With that concept in mind, Muchnick outlines “5 tenets of Orbital Value”:

  1. Every user of a website has a unique mass, measurable by their gravity (how many other users they attract towards themselves).
  2. The larger a user’s mass, the stronger their personal gravity.
  3. Users with larger mass pull users with smaller mass into their orbit.
  4. Once in a site’s orbit, a user is now a measurable part of the website. His mass is a measurable part of a self-contained system.
  5. The more often a user returns to a site (the more loyal they are), the tighter and faster their orbit is.

(Quoted from Muchnick’s blog).

So a valuation of the network, Muchnick says, is derived from the number of orbiting bodies but also the mass and speed of the orbiting bodies.

That’s brilliant and I would suggest that Muchnick’s idea is even more relevant today with the massive Twitter adoption we’re seeing. It is also a useful tool for new social networks that want to gain popularity but aren’t sure where to start.

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