Proving once again that I am an idiot, Facebook went public this morning with neither a whimper nor a bang. Back in January I predicted that Facebook godhead Mark Zuckerberg would implode during the company road show and the social media giant would back into becoming public simply by buying another company that’s already traded. From recent stories it looks like Zuckerberg did implode (blowing-off investors, hiding in the bathroom, etc.) but it didn’t matter: the deal was sealed long before any of that happened.
What’s next for Facebook of course, is fulfilling its promise as a public company. I still don’t think the company will ever be another Apple or even Microsoft, but there’s plenty of upside potential. Of course I mean the company’s new paid highlight feature.
At heart this is nothing more than the extras eBay sells for a dollar or two to make auction listings stand out only in this case applied to the crap we share with our Facebook friends (e.g. “I really mean this post, unlike most of the others”). This is an important source of incremental revenue for eBay, but for Facebook it can turbocharge the company.
To understand what I mean, look at Facebook’s business over the last four quarters during which it sold $3.7 billion in ads making up almost all of the company’s revenue. With 900+ million users that’s just over $4.00 in revenue per user per year. Pretty thin, which means the earnings impact of this new highlights feature will be especially fat.
It’s all profit for one thing. Though it must cost Facebook something to provide this feature the marginal cost per user is effectively nothing. If even a tenth of Facebook users highlight just two posts per year that would add 50 percent to Facebook’s revenue and increase profits by many times.
Ironically, the users of this feature will uniformly be the people who already over-use the service, publishing their every grunt and thought. Now they’ll just have a way to tell us which grunts they really mean.
Look for more of these tweaks over the next several quarters as Facebook gives Wall Street what it promised, which is earnings growth to support a rising share price. But understand that tweaks alone may not be enough with Facebook lacking a real mobile strategy.
Still, it must be a great day to be Mark Zuckerberg.
You’re no idiot Bob, like everyone else you just can’t be 100% clairvoyant.
I keep on reading you because even when you’re wrong, which is much less than when you’re right, you’re interesting and insightful about the tech industry.
I also see upside on Facebook as you mention, but wonder if this is the peak of the social media mania and if it has shot its innovation bolt.
Could be the peak. The buying and selling that happened today isn’t really encouraging. I’m sure Zuckerberg would have preferred the stock close at $40 or $42. But using tools like the one described above Facebook is going to deliver bigtime over the next few quarters. After then, who knows?
The buying-and-selling I think was a side effect (and a commentator at CNBC thinks so, too) that there were just too many shares put up for sale.
The trouble with today was that the day-traders got hit first by not being in on the first 90 minutes due to the technical issues, and then the disappointments started. The price didn’t jump. It didn’t jump because there were just too many shares at play – no one set of sales could drive the price up because too many other trades were happening at the price already set. Prices rise because of scarcity and demand, and there simply was no scarcity – there were just too many shares available for the demand.
The only people that made profits today were the companies that managed the trades on commission. One would have had a bigger profit day-trading e-Trade than Facebook.
As I see it (and I also know nothing) advertisers will now pay users to say nice things about their products and highlight the post. Many companies already have promo pages that most ad-sensitive people avoid. Now the devoted users can be paid to talk more and see a chance to make money doing it until highlighted posts develop a spam reputation.
I refuse to re-tweet stuff for Computer Shopper just to enter a competition
to win something – you have to draw the line somewhere –
Bob: You takes your chances and you’re honest afterward. Good for you. No complaints.
I think Facebook will implode eventually, but I’ve been wrong too. I just don’t see that FB is offering enough value beyond it’s where the cool kids and sorta-cool people congregate for now.
As FB works its users harder in order to monetize their interactions and data, there will come a time when FB is not so cool and that will be a crisis that FB may not survive.
I’ m not sure Facebook is just for cool kids and wannabes. It has thoroughly invaded the suburbs. It has become the main tool for soccer moms and housewives to show off pictures of their kids, and generally snoop on each other. Remember when Gramma was learning email so she could communicate with little Susie? Not Gramma is on Facebook and has friended Susie.
The bigger question is why everyone wanted a piece of Facebook. I’ll make a bold Cringely like prediction. Facebook $30 by end of this year and $15 by end of 2013.
Why? Bob points out how pathetic their current revenue model is. GM just pulled out after learning Facebook ads really do not pay. I can honestly say I do not pay attention to them.
As Facebook looks for more revenue, they will clutter the site up even more. Hate the timeline? I’m sure it’s just the beginning.
Current PE is 87. They are a fairly mature company. No idea how they move profits 4x or more to justify the price.
Here’s what I wonder: how long has the idea of selling boldface been on the shelf awaiting the moment when they needed to goose revenue? And how many others are still sitting up there waiting for the call? I’m picturing ol’ Mark up in front of the company hack-a-thon mumbling something like “The CEO needs revenue, bitches” and then leaning back awaiting ideas.
I actually think it went brilliantly. If the shares rose up dramatically then the banks would have undervalued the shares to make a quick killing. The fact they hovered around the price estimated at meant that the Facebook investors got a very good return on their money instead of the banks.
Except… the banks were also the big investors. so they still made out very, very well. They just made out insanely well, instead of grotesquely well. The shell game is still on.
It is a massive conflict of interest to be both an investor and an underwriter. It is as big a conflict of interest as being a major shareholder and also being an analyst predicting great things for the company.
All this panic in silicon valley. “Do we have a real mobile strategy?”. Woe to the tired old decrepit Personal Computer. First it was to die at the hands of cheap consumer level products. The the Mac. Then why would anyone use a desktop PC when there are laptops that do everything just as well? Then PDAs (remember THOSE?). Now it’s smart phones and tablets. Mobile devices appeal to several groups. Foremost is children. They can cart them around and secrete them from parents and teachers. Then college students. They won’t clog up a dorm room. Then Jet Setters who use them on…… jets and such. But to everyday adults? Why? Can’t use them at work. Why bother at home? And we’ve seen what happens when used between. Mobile devices appeal to those with learning, transit or and excess of leisure needs. No long lasting revenue stream which equals FAD.
Two classes of practitioners who will benefit greatly from hand- and lapheld devices are (nearer term) those who delay with skeletal/nerve/muscle problems and (longer term, as the relatively young addicted to these devices age) those who deal with vision problems. The healthy placement for a video display is straight ahead to 10 degrees down, with you sitting erect with shoulders relaxed. Devices where the keyboard is welded to a video display just angularly above the ‘board will soon and ongoingly have the waiting rooms of orthopedics and physical therapy professionals choked the way overindulgence in sunning by baby boomers is choking the waiting rooms of dermatologists now. Around age 40 the eye-test nature of the displays of especially the hand-held devices will have their users looking for big, bigger, bigger-still displays — about the size of, oh, those we use with our “obsolete” PCs.
And then there’s the fiction that knowledge workers day in and out performing any serious production at all will be/are able to sufficiently cruise with these toys, which are but portable/mobile _adjuncts_ to real home-base-class computing/display power.
The Macintosh uses an experimental pointing device called a “mouse.” There is no evidence that people want to use these things.
–John C. Dvorak
That’s the power of the PC. The open architecture lets it evolve and absorb technologies. Witness the Google and Intel app stores. But touch screens? Been there, tried that, didn’t work, bad idea….. Regardless, in a few years using apps on a phone or tablet in public will be as hip and fashionable as a bluetooth earpiece.
Note to Facebook investors: the first 50% decline in stock price is the most painful, the next 50% not so much.
This looks like 100% troll to me.
Considering the subject of this column is the Facebook IPO, this is at least as relevant as the posts about past and future fads. Tulips anyone? 🙂
What about the eWeek.com article concerning a $15 billion class action lawsuit against Facebook for privacy violations?
https://www.eweek.com/c/a/Security/Facebook-Class-Action-Lawsuit-Seeks-15-Billion-for-Privacy-Violations-265753/
I’m really disappointed by the whole debacle. Why? I smell the hint of dotcom pop!
I’m really disappointed that no-one seems to want to invest in actually making anything anymore. Microsoft make software and peripherals; Apple make hardware and make/sell software and music. Facebook? A typical middle-man that the general public are besotted with. I don’t think they know why.
I really hope my pension-fund doesn’t buy shares in FB because I’d worry about the long term returns. Oh, no wait, I’m old and almost there so hopefully…
It’s not that I’m against companies who offer thin services actually float, it’s just that there’s nothing there except numbers – and when a nothing company is valued so highly I really think China must be laughing…
(Sorry, a bit early in the morning. Hope that made some kind of sense! 😀 )
Seems like Highlight is a way to monetize business customers. A linked link from Bob’s post above says that for Business Pages, only 16% of their customers see their posts. Want to reach them all, it’s gonna cost you….
Facebook to General Motors (this gets better (for FB) as you read further):
“So GM, you don’t like spending $10 million on ads on FB, and are just going to use the free service? Well guess what, your posts on your free account are only going to reach 16% of your 379,000 folks who have “Liked” you. Wanna reach them all? Then pay us $.02 per impression ($20 CPM…cost per thousand) (not per post, per impression). This is the Highlight fee for businesses (vs. avg FB users). Your ad will be “in line” in the News feed of all accounts that liked you, just like they do on the bulletin board sites now. And if they click through, it’s another $10 CPM.”
“We see that you’ve got a new Malibu you’re trying to sell. Wanna reach all the folks who live on the coasts and went to Ivy League schools (who — statistics show — are 86% more likely to be Camry and Accord owners)? We’ve got 1,142,000 folks like that on Facebook, and that’ll be $60 CPM (cost per thousand). We won’t just send this coastal Ivy League folks who LIKED you. We’ll put this ad on all those 1.1 million accounts’ news feeds regardless of whether they’ve Liked you.”
“Wanna reach all the folks we know are driving Toyota Camry’s and Honda Accord’s? We’ve got 452,000 of those. Then that’ll be $100 CPM to place the ad to reach those 452,000.”
“Of those 452,000, we also know (because we’ve placed a super cookie on their computer and are tracking ALL their internet activity) that 15,000 of them are currently shopping for a car (they’ve been on Cars.com, Edmunds, and the Toyota and Honda sites in the last week or two). Those are qualified leads. Wanna reach them? That’s $500 CPM, please.”
You can see where this is going. The specific CPM rates above may be off, but the point is they’re going to charge more as the ad placements get closer to a Qualified Lead. So the voracious data suck, both on and off FB, will be monetized in this way by Zuck & Co.
Something like this — where they are mining tons of user data to find qualified leads — is the only way they’re going to be able to get enough ad dollars to justify a $100B+ valuation. The share of ad dollars they need to justify that valuation at a “normal” P/E ratio of ~15 is stunning. (Apple’s and Google’s forward P/E’s are 12-15x).
The thing about FB ads is that a decent ad blocker will take care of them. And if you don’t like having ads show up as “posts”, then just block them all. Sure, you can remain friends with GM or P&G or Acura, but you don’t get their crap that way.
Tech giveth to the advertisers, tech taketh off of my damn screen.
I use hosts file blocking but still see many Facebook ads since the ad server is Facebook. What’s your definition of “decent ad blocker”?
The trouble is they can’t start jamming in stuff everywhere or people will leave. At least Google was selling useful info with the ads, and they were largely off to the side and not terribly distracting. FB needs to walk a finer line because users are not primarily there for functional reasons, mostly just entertainment, and the tolerance for crap in your entertainment feed is lower than when you need something. It’ll even be harder to shove ads into a mobile screen with the skinny pipe and tiny screen.
I feel the same about “crap in my entertainment feed”, which is why I record most of my TV programming in advance. Yet it doesn’t stop the TV industry from being primarily sponsored by advertisers. No doubt the sucker born every minute watches ads and clicks on spam.
I wonder if the EU will once force Facebook to open up to competitors. European Commissioner for Competition Neelie Kroes already hinted that users should be in control of their data. This could make switching between competitors like Google+ a lot easier.
You mean by enabling you to download all the data you’ve put in to the service? Like the option called “Download Your Information” that Facebook already has?
Probably not.
No, like enabling competitors to read out the user’s list of friends and your posts if the user grants permission.
Being able to download it helps you move it but doesn’t “put you in control” of it if others (like paying advertisers) can also see it. The idea is to put yourself in control no matter which service has it. If you actually had full control, data mining would be unlikely unless the miners offered you something in return.
“Cognitive dissonance” is what happens when FB users become FB investors and realize what it means to their screens for the Zuckcrew to prioritize quarter-to-quarter revenue growth over everything else.
Any comments regarding the stuff posted about Facebook here?
https://www.donnaklinenow.com/
Donna has lots to say, especially about the Leader vs Facebook patent dispute.
I need to ask a question… it seems to be an article of faith that “social” is the golden ticket to get into the Willy Wonka factory of targeted ads. Why is this so? Why is this considered important and actually valuable?
I am a very, very, very heavy user of FB. To me, FB is a blogging tool, like Blogger, except I don’t have to find an audience. The audience was my friends on FB, and then that expanded to their friends, and on and on.
But if I look at what I talk about on FB, and what I comment on with friends post on FB, I don’t see how that really translates into understanding my buying habits such that better ads can be targeted to me. It has *some* overlap, but there are a lot of things I buy online, or with my credit card at a brick or mortar store, that never are talked about on FB, and things I talk about on FB don’t necessarily translate into my buying anything.
Google has more information about my buying habits (as I use their search tool to find products and use G-mail to get receipts and confirmation of online purchases). Amazon has more information about my buying habits, since I, you know, buy things from them. Apple has a crap load of information on my buying habits, as I am an iPhone/iPad/Mac/App Store/iTunes Store customer. Safeway has gobs of information about me, as I am a “safeway club” member. VISA/Chase have massive information about me as I use my Visa card for nearly every purchase.
They have to mine this data, but that’s not incredibly difficult. They lack knowing about who my friends are and what *they* buy, but what my friends might buy is a lot less interesting (I submit) than somebody who already buys similar things to what I buy, makes a similar income, and shops at similar places. FB has to mine my social connections, which is something Visa/Safeway/Best Buy/Apple/Amazon/Google don’t have, but they are missing a HUGE piece of data – what I actually spend money on.
It seems to me that FB needs data from Google/Best Buy/Visa/Safeway a helluva lot more than those companies need data from FB.
If that premise is true, how the hell can FB be a $104B company? They are nearly as valuable as Intel ($129B) or Amazon? Seriously? I just don’t see it.
Social companies have yet to show that the data they have about their users can be translated into money. I don’t see what FB has, other than eyeballs on their page longer, than the other social companies. And thus, I don’t think they are worth anywhere NEAR what Wall Street is saying they are now worth.
And this, I think, could lead to FB doing some incredibly stupid things. I could very well see them going the Yahoo route, using a fake valuation to throw their cash pile into purchases that don’t actually add value to them.
I think FB is a fine service, just not a service worth $100B in value. And trying to behave like they should be worth that is going to cause them to do some very, very, very stupid things.
I largely agree with your take on how difficult it’ll be to get from relationship info to behavior info. And that’s what they’ll have to do to make their ads effective or relevant.
One thing they could do is introduce a new type of relationship that earns or costs money. Think about a Recommends tag (similar to Like: “Bojennett Recommends Google+”) where you get paid for flagging and companies pay for being flagged. You could put or allow ads in your stream to earn more, you could spend credits to avoid ads. The currency would be FB credits, allowing FB to hold the money and control how it is spent.
Of course, this would also qualify as one of those incredibly stupid ideas that’ll pollute the well and drive away users…
With only one day of trading it is hard to get a good read. I did expect a big uptick followed by the smart money selling to the dumb money then a short free fall. The LinkedIn IPO is an example.
Maybe the big investment houses are wise to this IPO behavior and stopped it from happening. I am sure it results in some very angry customers who got in at the high peak which will not be seen again for years.
This has been bothering me. Steve Blank said something similar and I agree. Why is Facebook a technology stock. Really?
Yes they write software and the delivery is over the web, but they are not selling that technology. My insurance company wrote a web app and iPhone and Android, etc. Why aren’t they a technology stock now?
The site is programmed in PHP, so I’ve read, could be wrong. Zuck did not invent it to enable the social graph. That is not a technology company.
There is an impedance mismatch, and because I know what that means it bothers me that this is a TECH IPO, not just an IPO.
You need to read more about Facebook. They are constantly developing more efficient network and server designs, and then giving them away for free. Look up Open Compute Project. It’s a lot more disruptive than Siri.
Of course, asking an insurance man to understand the word “free” may be asking a bit much.
Mobile strategy for Facebook?
What’s their smoke signal strategy for the Day-After The Iranian EMP?
You’re a great believer in people power, I can tell. Perhaps you should buy a TV and start watching the news. Also a copy of Strunk & White.
You’re a great believer in people power, I can tell. Perhaps you should buy a TV and start watching the news. Also a copy of Strunk & White.
How much of your fine assessment of Facebook’s options took complete account of the dual facts that Facebook makes nothing if ads fail to create sales, and really is no more than a glorified toilet wall? Sell, sell, sell.
Meant genuinely fine assessment, btw. Should have eliminated the prospect of seeming a bit pissy. Was not.
In all the press I’ve skimmed (some more closely), I keep not seeing anyone talking about price versus earnings ratio. Hmm. And now the lawsuit over withheld information – GM’s decision to stop ads preceded the float, right? Seems like everyone liked the pretty tulips a little too much again.
The same can be said about the advertising model in general; like spam, it works because enough people respond to it.
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Fear not Bob, this is not over yet.
I, like you, have a feeling that this kid has not shown his true colors yet. We have had little tastes of it, but nothing like what I feel is coming.
How ominous. Tell me more about what you see in someone else’s future.
The non-blinking Zuckerberg strikes me as alien. Are we sure he’s from earth? Has anybody gotten a DNA sample to prove it?
For all we know he’s the vanguard of an invasion force from some other planet. We’re making it too easy for them.
Be seeing you.
Why do so many of you people have such short memories? Where does playing silly financial games get you?
And all this for a company that is the epitome of pointless. It doesn’t make anything. It lets stupid people publish what even Bob calls “crap”. It is highly manipulative and will probably get more so. The morality of its personnel can be assessed from the fact that one of its founders thought that their nationality and supporting their country was less important than tax avoidance!
Well, Zuck just got married the day after IPO to a Chinese lady. Looks like Facebook next growth market will be China. Murdoch did the same many years ago before venturing his MSM empire into China.
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