Hostage Valuation: Gmail’s worth $10 billion


Forget your DCF. I want to propose a new way to value internet properties: The Hostage Valuation.

Is Facebook worth $15 billion or $3 billion. Who knows? But here’s a decent way to test that. (Other thoughts from Sam here)

Suppose Facebook decides to holds its user’s content hostage and demand a ransom. “Pay me X dollars or you can never use the service again and we’ll delete your account.” How much would you pay? Most wouldn’t cough up a single cent. But some would. And a few would cough up quite a bit.

Google, of course, would never do this because it has a brand to protect with a range of products. But just for fun, let’s do a back-of-the-envelope Hostage Valuation for Gmail.

Number of users: ~100 million.
Number of active users: Let’s call it 50 million.

Let’s try to figure out if held hostage how much ransom each of those 50 million users would pay for continued access to their inboxes/outboxes.

Starting with me: Certainly above $1000, but probably less than $10,000. As a certified email addict, would guess that I’m in the top 5% in propensity to pay, but probably not the top 0.5%. Based off of that datapoint I propose the following assumptions (open for debate):

Percentiles 0 – 75% : Flick off Google and don’t pay anything
Percentiles 75 – 95%: Willing to cough up $100
Percentiles 95 – 99%: Willing to pay $2000
Top 1%: Willing to pay $10,000 on average (probably a few rich, email-holics willing to pay $1 million raising that average)

That yields an Hostage Valuation of Gmail of $10 billion. Sound reasonable?

Couple notes:
1) Assumes that Google is able to price discriminate well. My guess is they could. Base it off usage stats and demographic estimation from data mining.
2) Notice how the top 1% of users is worth as much as the other 99%. That’s the Long Tail.
3) Any ideas under what conditions the hostage valuation is greater than or less than a standard valuation?

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