Jason Kottke attempts to value Facebook using Whopper burgers - he however commits a serious economic mistake by ignoring principles of marginal valuation.
Let's assume, as Jason does, that Facebook can be valued by the value of the connections (or friendships). This does not sound so unreasonable, and is actually a clever idea. Also, let's assume that there are zero cost of making (producing) a friendship link. What is the social value of Facebook? It is the area under the demand curve D for friendship connections, as depicted by the figure below.
A potential buyer, if acting as a perfectly price-discriminating monopoly, can extract this whole surplus, which also puts an upper bound on the valuation of Facebook.
Assume however that we are in Burger King's situation, and can set only one price for sacrificing a friendship connection. Burger King decided to set this price to 0.12 USD/connection, as argued by Jason. In this case, the value of Facebook that can be extracted by actually charging 0.12 USD/connection is given by the rectangle 0PAB.
What Jason does is that he multiplies the current total number of connections by the 0.12 USD price. This corresponds to the rectangle OPA'B'.
Depending on the elasticities in the right tail of the demand curve, the areas of the two rectangles can be strikingly different. Indeed, we can easily argue that many of the connections at Facebook are just garbage, with a value lower than 0.12 USD. The area of rectangle OPA'B' does not make any economic sense.
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