The Wall Street Journal has published several page one articles recently concerning Facebook's putative $100B market value. I had to go to the Journal's site to confirm Tuesday's edition's lead which contained that number, it seemed so staggering. Facebook is looking to sell just 10% of that value in its IPO scheduled for early next year.
Much is being written regarding the appropriateness of that valuation. I'm not in that business, so I'm not going to argue over billions.
What I am, though, is a strategist who has learned to apply that type of critical thinking to business and equity management.
Among online ventures, I would agree that Facebook should be at the upper end of the valuation scale. Here's why.
Zuckerberg's- and his famous twin collaborators- big idea was initially simply replacing the once-popular college paper 'picbooks' or 'facebooks,' which I first encountered as a graduate business school student at the University of Pennsylvania, with an online version. From there, the rest is history.
Like Google's Brin and Paige, Zuckerberg and his colleagues invented one thing, which just happened to be a popular 'app' for which, in time, advertising was a natural fit. For Google, the search results were just begging for nearby ad placement. And the best part was that, unlike passive television, active searches allowed Google to sell literal terms to advertisers, thus making specific buyers much more valuable.
Facebook has the same characteristic. By developing an application which induces people to spill their guts about their lives onto a webpage, it's tailor made for associating advertising with these pages. And because of its communal nature, it multiplies that value through the various platinum-plated, self-organized, genuine communities of great and frequent interest.
For a marketer, it's a dream come true. Instead of searching for, say, early adopters, you have the ability to link to the close friends of one by virtue of the site's very nature.
How can that not be valuable? Or, as the late Steve Jobs might say, 'insanely' great and valuable?
And because Facebook is simply a generic self-expression tool, it's potentially usable by every living person on the planet, and maybe, in the future, the dead, as well, in absentia. So the accessible market is literally the entire global population that has web access.
Search engines have come and gone. Who even recalls Webcrawler or Lycos anymore? But, like telephony or the mail, social networking technologies become more valuable and monopolistic by their very nature. That's why MySpace became such a money sink and, ultimately, loss for NewsCorp. Second place in social networking is nowhere. Especially when the market share leader is so far ahead as Facebook is.
Thus, while Linked-In is, by comparison, relatively narrow, with its business- and skills-focus, and Groupon is deal-specific, Facebook is perhaps the most common of social networking applications. It probably does belong, if not now, then eventually, in Google's league, which is now about $200B.
Stunningly, that's only twice what Facebook's IPO-imputed valuation. Barring gross mismanagement, I think that sort of valuation range is quite reasonable and appropriate. In the future, who knows by how much that could increase?
From an equity management perspective, of course, that doesn't mean my portfolios would include Facebook in the future. Google never made it into the portfolio. In the early years, its valuation was simply too rich, relative to its growth rate. By the time the valuation had become reasonable, according to my selection criteria, its growth, too, had moderated. Perhaps Facebook will undergo the same dynamics. It will be interesting to see.
Showing posts with label Facebook. Show all posts
Showing posts with label Facebook. Show all posts
Friday, December 02, 2011
Thursday, June 02, 2011
Eric Schmidt Is Wrong- Google Isn't A Social Network Company
I found Eric Schmidt's mea culpa for leading Google to miss business opportunities in social networking to be profoundly misplaced. Perhaps even a touch too egotistical, as if merely spotting the customer needs meant Google would have dominated or even seriously contested the product/market.
On the contrary, I find myself in agreement with a guest who appeared on Bloomberg yesterday. I can't recall his name, but he was a youngish man with a rather hip manner who apparently founded some social-networking-related consulting or other type of firm. He opined that the attributes and skill set which made Google what is is- search algorithms, advertising and some competitive inroads in the area of basic business application software- made it an unlikely candidate to either originate or successful develop social networking businesses.
It's an astute and, I believe, correct assessment. The co-founders of Google were geeks. They recruited Schmidt, after his lost battles with Microsoft while at Novell, to be the adult in charge at Google.
The Bloomberg guest even noted the somewhat disdainful manner in which Schmidt referred to "the friends thing" to describe Facebook's core business focus. If any firm could have pre-empted Facebook, it was, as I have written in prior posts, Yahoo. Yahoo had both information and facilities to set up accounts and connect with people years ago. But Jerry Wang and Terry Semel botched that aspect of the firm's business, leaving the door open for what humbly began as a college picture book migrated to the online world.
If Google had driven heavily into the social networking product/market, it probably would have caused distractions, created a sort of split-personality among the company's business groups, and perhaps have caused more overall harm than good for Google's financial performance.
It's a rare firm that can do more than one major thing, perhaps with affiliated minor things, well. Apple has sort of done it, but not really. Jobs' Apple has become a specialized digital device firm with linking content management via iTunes.
Other than that, no technology firms, to my knowledge, have succeeded in two radically disparate businesses.
There's absolutely no reason to believe Google would have, had Schmidt, or anyone else at the firm, spotted the opportunity prior to Facebook's rise. To think it would have seems rather arrogant on Schmidt's part.
On the contrary, I find myself in agreement with a guest who appeared on Bloomberg yesterday. I can't recall his name, but he was a youngish man with a rather hip manner who apparently founded some social-networking-related consulting or other type of firm. He opined that the attributes and skill set which made Google what is is- search algorithms, advertising and some competitive inroads in the area of basic business application software- made it an unlikely candidate to either originate or successful develop social networking businesses.
It's an astute and, I believe, correct assessment. The co-founders of Google were geeks. They recruited Schmidt, after his lost battles with Microsoft while at Novell, to be the adult in charge at Google.
The Bloomberg guest even noted the somewhat disdainful manner in which Schmidt referred to "the friends thing" to describe Facebook's core business focus. If any firm could have pre-empted Facebook, it was, as I have written in prior posts, Yahoo. Yahoo had both information and facilities to set up accounts and connect with people years ago. But Jerry Wang and Terry Semel botched that aspect of the firm's business, leaving the door open for what humbly began as a college picture book migrated to the online world.
If Google had driven heavily into the social networking product/market, it probably would have caused distractions, created a sort of split-personality among the company's business groups, and perhaps have caused more overall harm than good for Google's financial performance.
It's a rare firm that can do more than one major thing, perhaps with affiliated minor things, well. Apple has sort of done it, but not really. Jobs' Apple has become a specialized digital device firm with linking content management via iTunes.
Other than that, no technology firms, to my knowledge, have succeeded in two radically disparate businesses.
There's absolutely no reason to believe Google would have, had Schmidt, or anyone else at the firm, spotted the opportunity prior to Facebook's rise. To think it would have seems rather arrogant on Schmidt's part.
Tuesday, May 24, 2011
The Non-Fallout From Facebook's Dirty PR Tricks
It's been a few weeks since Facebook admitted that it hired Burson-Marsteller to smear Google via placed media pieces. The facts seem not to be in dispute, i.e., Facebook retained the public relations firm to solicit media pieces critical of Google. Burson-Marsteller admitted having violated its own policies by not disclosing Facebook's identity while it solicited the articles.
I'm rather shocked by the lack of outcry among Facebook's users and the technology community in general. To those of us old enough to remember, this smacks of Tricky Dicky Nixon's infamous enemies lists and his campaign staff's dirty tricks.
For a company which doesn't seem to really do much of anything, and has had some issues of its own with misusing its members privacy at time, you'd think there would be a much greater reaction in the sector or the media.
Instead, it's been rather quiet. No pillorying of Zuckerberg in the public media.
How'd he get off so lightly?
I'm rather shocked by the lack of outcry among Facebook's users and the technology community in general. To those of us old enough to remember, this smacks of Tricky Dicky Nixon's infamous enemies lists and his campaign staff's dirty tricks.
For a company which doesn't seem to really do much of anything, and has had some issues of its own with misusing its members privacy at time, you'd think there would be a much greater reaction in the sector or the media.
Instead, it's been rather quiet. No pillorying of Zuckerberg in the public media.
How'd he get off so lightly?
Tuesday, February 22, 2011
Wither Yahoo Now?
This past Tuesday's edition of the Wall Street Journal contained a long piece on Yahoo's coming to terms, as it were, with Facebook, entitled Yahoo Decides to Friend Facebook.
The piece chronicled the firm's changing attitudes toward it's most recent nemesis, Facebook. Nothing has changed since my last Yahoo post only a few weeks ago.
Here's another view. Since the late 1990s, Yahoo's absolute stock price peaked, as expected, during the bubble, then collapsed. But what's more interesting is that it was already flat to down by 2005, well before the latest equity market crisis.
Reading that Yahoo is now desperately trying to put links to Facebook on its own pages seems rather pathetic. Thanks to Terry Semel's inept choices while CEO of the firm, and Jerry Yang's subsequent incompetence in the role after Semel's departure, Yahoo just marked time with no particular strategy or mission in sight.
Now, it's too late. Even the typically-competent Bartz can't seem to do more than get a few dollars for using Bing and doing an ad deal with Microsoft. But Yahoo isn't lighting the world on fire with free content anymore, and missed its chance, long ago, to be a profitable, earlier version of Facebook.
To have seen its stock price fall from over $100 to under $18 in 11 years makes me wonder just who still owns this turkey? Back in mid-2008, Carl Icahn briefly ignited interest, amidst Microsoft's attempt to do some sort of deal with the firm. In retrospect, Yang missed a chance to let Ballmer make a huge blunder and give his own shareholders a way out of Yahoo's long, slow decline.
Where to now? With no clear mission for the firm going forward, what would a current investor do? I'd say sell. The risks of further erosion are probably at least as great, if not moreso, than Bartz magically getting a higher value now for selling the firm to someone who would, by some stretch, need whatever it is of value that Yahoo still offers.
There seems to be no solo act for Bartz at Yahoo which will do shareholders any good. Continuing to operate the firm will probably just result in a declining share price. Shutting it down would destroy value. I suppose, at some price above zero, some other tech firm will see some kind of value in the firm's assets, if only its internet traffic.
It's truly been sad watching the firm manage to evade natural exit strategies over the past few years, now to languish behind even the moribund Microsoft, watching upstart Facebook move on without even noticing Yahoo in the same general product/market space.
The piece chronicled the firm's changing attitudes toward it's most recent nemesis, Facebook. Nothing has changed since my last Yahoo post only a few weeks ago.The first nearby, two-year price chart, compares Yahoo, Google, Microsoft and the S&P500 Index.
Begun near the market's spring lows of 2009, shortly after Carol Bartz took the helm at Yahoo, it depicts just how badly Yahoo has lagged even the moribund Microsoft. Both trail the Index by significant margins.
Here's another view. Since the late 1990s, Yahoo's absolute stock price peaked, as expected, during the bubble, then collapsed. But what's more interesting is that it was already flat to down by 2005, well before the latest equity market crisis.Reading that Yahoo is now desperately trying to put links to Facebook on its own pages seems rather pathetic. Thanks to Terry Semel's inept choices while CEO of the firm, and Jerry Yang's subsequent incompetence in the role after Semel's departure, Yahoo just marked time with no particular strategy or mission in sight.
Now, it's too late. Even the typically-competent Bartz can't seem to do more than get a few dollars for using Bing and doing an ad deal with Microsoft. But Yahoo isn't lighting the world on fire with free content anymore, and missed its chance, long ago, to be a profitable, earlier version of Facebook.
To have seen its stock price fall from over $100 to under $18 in 11 years makes me wonder just who still owns this turkey? Back in mid-2008, Carl Icahn briefly ignited interest, amidst Microsoft's attempt to do some sort of deal with the firm. In retrospect, Yang missed a chance to let Ballmer make a huge blunder and give his own shareholders a way out of Yahoo's long, slow decline.
Where to now? With no clear mission for the firm going forward, what would a current investor do? I'd say sell. The risks of further erosion are probably at least as great, if not moreso, than Bartz magically getting a higher value now for selling the firm to someone who would, by some stretch, need whatever it is of value that Yahoo still offers.
There seems to be no solo act for Bartz at Yahoo which will do shareholders any good. Continuing to operate the firm will probably just result in a declining share price. Shutting it down would destroy value. I suppose, at some price above zero, some other tech firm will see some kind of value in the firm's assets, if only its internet traffic.
It's truly been sad watching the firm manage to evade natural exit strategies over the past few years, now to languish behind even the moribund Microsoft, watching upstart Facebook move on without even noticing Yahoo in the same general product/market space.
Thursday, January 20, 2011
Holman Jenkins On Apple, Goldman & Facebook
Holman Jenkins, Jr.'s editorial in yesterday's Wall Street Journal dealt with the uselessness of the SEC. He approached the topic rather ingeniously, using the recent news concerning Apple and Facebook.
Regarding Apple, Jenkins simply noted that the firm has disclosed what it felt was sufficient regarding the health of its iconic CEO, Steve Jobs. After that, shareholders are free to buy, sell, or hold the stock, as they wish.
For what it's worth, I believe Jenkins is the first major pundit whom I've read that has explicitly stated the same sentiment I share on this topic, i.e., shareholders have the ability to exit their position in a stock, at nominal cost, if they don't like something about the way the firm is managed. Period. Stop whining.
On the matter of Facebook and Goldman Sachs, Jenkins concluded his brief series of pieces which have generally lauded Facebook's management and absolved Goldman of anything other than simply doing their usual job. Since I wrote this post last week, Goldman yanked its Facebook private placement from its domestic clients, ostensibly to avoid potential SEC sanctions, and, instead, turned to its overseas client base. This has reputedly resulted in a lot of angry domestic clients.
Jenkins has written several pieces extolling Facebook's Zuckerberg's right to remain private, maturity in recognizing his own not-yet-ready-for-prime-time management expertise, and the victimless nature of the firm's right to use a private offering rather than an IPO to raise more capital.
I continue to disagree, somewhat, with Jenkins on the matter of public access to such firms only after the big initial gains are locked in for the wealthy few. But I enjoyed reading his clever turn on the SEC, contending that Goldman's sudden reversal makes a mockery of the agency.
Specifically, Jenkins contends that the SEC made noises about the lack of total privacy of the Facebook private placement in part to look aggressive and tough in the wake of its lapses in the Madoff case and the implosion of the major investment banks, under its watch, during the 2007-09 financial crisis.
On both Apple and the SEC, I concur with Jenkins. He's especially astute to point out how the SEC, by its very existence, has ironically resulted in more investor risk, not less, since many believe the SEC has made investing safe.
Obviously, it hasn't, which creates an enormous and expensive unintended consequence. The core benefits of the agency, whatever they would be, could no doubt be achieved for less money and with less interference in market activities.
Regarding Apple, Jenkins simply noted that the firm has disclosed what it felt was sufficient regarding the health of its iconic CEO, Steve Jobs. After that, shareholders are free to buy, sell, or hold the stock, as they wish.
For what it's worth, I believe Jenkins is the first major pundit whom I've read that has explicitly stated the same sentiment I share on this topic, i.e., shareholders have the ability to exit their position in a stock, at nominal cost, if they don't like something about the way the firm is managed. Period. Stop whining.
On the matter of Facebook and Goldman Sachs, Jenkins concluded his brief series of pieces which have generally lauded Facebook's management and absolved Goldman of anything other than simply doing their usual job. Since I wrote this post last week, Goldman yanked its Facebook private placement from its domestic clients, ostensibly to avoid potential SEC sanctions, and, instead, turned to its overseas client base. This has reputedly resulted in a lot of angry domestic clients.
Jenkins has written several pieces extolling Facebook's Zuckerberg's right to remain private, maturity in recognizing his own not-yet-ready-for-prime-time management expertise, and the victimless nature of the firm's right to use a private offering rather than an IPO to raise more capital.
I continue to disagree, somewhat, with Jenkins on the matter of public access to such firms only after the big initial gains are locked in for the wealthy few. But I enjoyed reading his clever turn on the SEC, contending that Goldman's sudden reversal makes a mockery of the agency.
Specifically, Jenkins contends that the SEC made noises about the lack of total privacy of the Facebook private placement in part to look aggressive and tough in the wake of its lapses in the Madoff case and the implosion of the major investment banks, under its watch, during the 2007-09 financial crisis.
On both Apple and the SEC, I concur with Jenkins. He's especially astute to point out how the SEC, by its very existence, has ironically resulted in more investor risk, not less, since many believe the SEC has made investing safe.
Obviously, it hasn't, which creates an enormous and expensive unintended consequence. The core benefits of the agency, whatever they would be, could no doubt be achieved for less money and with less interference in market activities.
Tuesday, January 11, 2011
Another Perspective On Facebook's non-IPO
I recently wrote this post in light of the publicity surrounding Facebook's recent private equity offering, ending with this passage,
"Facebook continues to confound. Is global social networking truly a value-added proposition and business model on a par with Google's search and related ad businesses? Is online gaming via social networking really so novel and profitable?
Or is Zuckerberg merely enjoying the latest, most profitable round of social networking hype?
One thing may be a positive, however. That is, Facebook, Twitter and Groupon, at present, are not public. So any frothiness that subsequently deflates, with concomitant value destruction, will be absorbed by wealthy, so-called 'sophisticated' investors, rather than the general public."
Then there's another side, presented in a Wall Street Journal editorial in Monday's edition. Gordon Crovitz asks if the real issue is that wealthy private investors who are clients of Goldman Sachs are getting the benefit of early price appreciation in Facebook, while the average investor has to wait for an IPO that will enrich those early private investors?
What Crovitz contends is that my last sentence needn't even be true, and, at least each investor should determine the suitability of a Facebook-like equity for her/himself.
On further reflection, I agree with him. Mostly because the current system results in the wealthy having access to so many issues which the average retail investor never sees. An example comes to mind: then-vibrant Microsoft.
And I suppose one can contend that retail investors don't need hot IPOs to lose money. They can do that in individual brokerage accounts already. But as Crovitz notes, issues like Facebook, regardless of their long term viability, tend to have short term gains which now belong exclusively to sophisticated, already-wealthy investors.
So I guess I don't mind that retail investors would be exposed to risks from investing in a less-mature Facebook's IPO. Because at least that company would have audited financial statements allowing investors to easily assess, for themselves, the wisdom of buying and/or holding the shares. But on the positive side, average investors would have the opportunity to participate in some of the genuinely value-adding investing successes much earlier, thus sharing much more of the early gains.
To be clear, I'm not advocating investing in Facebook, Groupon or Twitter. Certainly not Twitter. But I am in favor of the SEC putting these into public markets earlier, allowing for public availability of their financials in real time at a much earlier phase of their corporate life.
"Facebook continues to confound. Is global social networking truly a value-added proposition and business model on a par with Google's search and related ad businesses? Is online gaming via social networking really so novel and profitable?
Or is Zuckerberg merely enjoying the latest, most profitable round of social networking hype?
One thing may be a positive, however. That is, Facebook, Twitter and Groupon, at present, are not public. So any frothiness that subsequently deflates, with concomitant value destruction, will be absorbed by wealthy, so-called 'sophisticated' investors, rather than the general public."
Then there's another side, presented in a Wall Street Journal editorial in Monday's edition. Gordon Crovitz asks if the real issue is that wealthy private investors who are clients of Goldman Sachs are getting the benefit of early price appreciation in Facebook, while the average investor has to wait for an IPO that will enrich those early private investors?
What Crovitz contends is that my last sentence needn't even be true, and, at least each investor should determine the suitability of a Facebook-like equity for her/himself.
On further reflection, I agree with him. Mostly because the current system results in the wealthy having access to so many issues which the average retail investor never sees. An example comes to mind: then-vibrant Microsoft.
And I suppose one can contend that retail investors don't need hot IPOs to lose money. They can do that in individual brokerage accounts already. But as Crovitz notes, issues like Facebook, regardless of their long term viability, tend to have short term gains which now belong exclusively to sophisticated, already-wealthy investors.
So I guess I don't mind that retail investors would be exposed to risks from investing in a less-mature Facebook's IPO. Because at least that company would have audited financial statements allowing investors to easily assess, for themselves, the wisdom of buying and/or holding the shares. But on the positive side, average investors would have the opportunity to participate in some of the genuinely value-adding investing successes much earlier, thus sharing much more of the early gains.
To be clear, I'm not advocating investing in Facebook, Groupon or Twitter. Certainly not Twitter. But I am in favor of the SEC putting these into public markets earlier, allowing for public availability of their financials in real time at a much earlier phase of their corporate life.
Thursday, January 06, 2011
Is The Online Social Network Sector Another Investment Bubble?
You know a trend is becoming important when both the Wall Street Journal and the Economist mention it within the same month.
In this case, the trend is a resurgence of bubble-like valuations in online social networking companies.
Back in September of 2007, the Journal's Dennis Berman wrote an excellent piece concerning the online communities business, about which I posted here. Berman's piece covered a lot of territory, but my concluding observations and quotes from his piece (in blue) were,
"At some point, the questions about Facebook the business will eclipse the praise of Facebook the social phenomenon. And once that point hits, Mr. Zuckerberg will be less able to dictate the terms of how fresh capital is put to use."
Mr. Berman pulls no punches. From his initial description of the now-essentially-defunct GeoCities, to the likely fate of Facebook, his superb writing uncovers a wonderful, timeless story of business innovation, absorption, mismanagement, the rise of new competitors, and the continuing weakness of the underlying business model.
Aside from the marvelous business strategy expose, Mr. Berman makes it hard for the reader to avoid asking the question,
"If no other, larger firm, had bought, or bought stakes in, GeoCities, or was trying to buy or invest in Facebook, would Bohnett and Zuckerberger realize millions in wealth simply from the profitability of their businesses and business model? Or would they become, like Amazon, long on initial market value gains, but short on realized profits?"
That last passage came to mind immediately as I read the Economist's piece on the current frothiness of social networking site valuations. It referenced Groupon rebuffing a $6B offer from Google, Twitter being valued at $3.7B, and Facebook's private offerings valuations rising 77% in just three months. Of course, the big recent news is Goldman's funding a private offering for Facebook, with the shares to be allocated among its most-favored clientele.
Holman Jenkins, Jr., of the Journal, made the Facebook private offering the subject of his column last week, supporting Zuckerberg's choice to remain private and take time to mature before going public.
Perhaps Berman's observations of three years ago are outdated and no longer germane. Then, again, the collapse of the late 1990s technology valuation bubble came after many pundits disregarded the need for profits. Facebook is reputed to have annual revenue in the low billions thanks to ad revenue and a share of sales from games through its site. Still, I wonder if they really have solved the challenges about which Berman wrote so eloquently.
An older veteran CEO with whom I spoke recently was dismissive of Facebook and other online businesses as genuinely value-creating. I'm not quite so sweeping in my scepticism. For example, it's clear what value Amazon and Google have managed to create. I can sort of comprehend Groupon's appeal, although I continue to wonder how profitable it is, and/or what its growth prospects are, or what the long-run financial costs are to the businesses granting the discounts. Twitter doesn't seem to be a viable business.
Facebook continues to confound. Is global social networking truly a value-added proposition and business model on a par with Google's search and related ad businesses? Is online gaming via social networking really so novel and profitable?
Or is Zuckerberg merely enjoying the latest, most profitable round of social networking hype?
One thing may be a positive, however. That is, Facebook, Twitter and Groupon, at present, are not public. So any frothiness that subsequently deflates, with concomitant value destruction, will be absorbed by wealthy, so-called 'sophisticated' investors, rather than the general public.
In this case, the trend is a resurgence of bubble-like valuations in online social networking companies.
Back in September of 2007, the Journal's Dennis Berman wrote an excellent piece concerning the online communities business, about which I posted here. Berman's piece covered a lot of territory, but my concluding observations and quotes from his piece (in blue) were,
"At some point, the questions about Facebook the business will eclipse the praise of Facebook the social phenomenon. And once that point hits, Mr. Zuckerberg will be less able to dictate the terms of how fresh capital is put to use."
Mr. Berman pulls no punches. From his initial description of the now-essentially-defunct GeoCities, to the likely fate of Facebook, his superb writing uncovers a wonderful, timeless story of business innovation, absorption, mismanagement, the rise of new competitors, and the continuing weakness of the underlying business model.
Aside from the marvelous business strategy expose, Mr. Berman makes it hard for the reader to avoid asking the question,
"If no other, larger firm, had bought, or bought stakes in, GeoCities, or was trying to buy or invest in Facebook, would Bohnett and Zuckerberger realize millions in wealth simply from the profitability of their businesses and business model? Or would they become, like Amazon, long on initial market value gains, but short on realized profits?"
That last passage came to mind immediately as I read the Economist's piece on the current frothiness of social networking site valuations. It referenced Groupon rebuffing a $6B offer from Google, Twitter being valued at $3.7B, and Facebook's private offerings valuations rising 77% in just three months. Of course, the big recent news is Goldman's funding a private offering for Facebook, with the shares to be allocated among its most-favored clientele.
Holman Jenkins, Jr., of the Journal, made the Facebook private offering the subject of his column last week, supporting Zuckerberg's choice to remain private and take time to mature before going public.
Perhaps Berman's observations of three years ago are outdated and no longer germane. Then, again, the collapse of the late 1990s technology valuation bubble came after many pundits disregarded the need for profits. Facebook is reputed to have annual revenue in the low billions thanks to ad revenue and a share of sales from games through its site. Still, I wonder if they really have solved the challenges about which Berman wrote so eloquently.
An older veteran CEO with whom I spoke recently was dismissive of Facebook and other online businesses as genuinely value-creating. I'm not quite so sweeping in my scepticism. For example, it's clear what value Amazon and Google have managed to create. I can sort of comprehend Groupon's appeal, although I continue to wonder how profitable it is, and/or what its growth prospects are, or what the long-run financial costs are to the businesses granting the discounts. Twitter doesn't seem to be a viable business.
Facebook continues to confound. Is global social networking truly a value-added proposition and business model on a par with Google's search and related ad businesses? Is online gaming via social networking really so novel and profitable?
Or is Zuckerberg merely enjoying the latest, most profitable round of social networking hype?
One thing may be a positive, however. That is, Facebook, Twitter and Groupon, at present, are not public. So any frothiness that subsequently deflates, with concomitant value destruction, will be absorbed by wealthy, so-called 'sophisticated' investors, rather than the general public.
Wednesday, September 26, 2007
Microsoft Tries New Online/Ad Strategies- Again
Yesterday, I wrote this post regarding a Wall Street Journal article which harkened back to GeoCities, the very first online networking site, and discussed today's landscape in that product space.
I suppose the timing of Dennis Berman's piece was no accident, appearing, as it did, as Microsoft is in talks to buy up to 5% of Facebook for a reported $300-500MM.
Tuesday's Journal carried a front-page article describing Microsoft's many, failed attempts to break into online businesses, from browsers to ad placement businesses. As I wrote here, in May of last year, I think the only way Microsoft will realize consistently superior returns for its shareholders is to break itself up into three pieces, each focusing on one business: applications software, operating software, and internet-related businesses. As it stands now, and for some years, Microsoft's diversified structure has simply led the software giant to become a veritable Gulliver, tied down in competition with many, more nimble adversaries in each of the niches in which it does business.
According to the Journal article, this time around, Microsoft is pinning everything on one Brian McAndrews, an executive whom it acquired in the deal to buy aQuantive, Inc., an online ad company, for $6B.
Of course, as the article also details,
"Just 17 months ago Microsoft hired Steve Berkowitz, from Internet search company Ask.com, as a vice president in its online group. Much as Mr. McAndrews is seen today, Mr. Berkowitz was positioned as the outsider needed to lead a cultural change at a company strong on technology but short on experience in the advertising industry.
A lack of political chops in working within the huge company and a clash with a highly respected engineering manager have hampered Mr. Berkowitz, say people familiar with the matter. Several of Mr. Berkowitz's duties were recently ceded to Mr. McAndrews."
So, once more, Microsoft has thrown money at a business in which it lags, without really re-orienting the company to address the fundamental strategic shift such actions implicitly acknowledge.
As I've written before, I don't think Microsoft truly understands, nor is currently capable, of competing totally all-out to win in the online business arena. It's still a software company trying to re-ignite growth by viewing online as a distribution platform, rather than a do-or-die business.
It seems to me, per Mr. Berman's article, that Facebook is the big winner here. Microsoft will, as usual, pay up but cede control. It won't seriously change to address the new business. And Facebook will reap a huge payday simply for carrying Microsoft ads.
If there's any downside for Facebook, it would be these: it's not selling enough of itself while the premium is stratospheric, and; it may, as Yahoo did with its payments from ATT years ago, grow fat and lazy on the passive revenue stream, only to wake up in a few years behind its competitors.
Time will tell. However, I cannot help but think that, once again, Microsoft's unfocused, half-hearted attempts to 'beat Google,' simply to do so, will enrich third parties, further impoverish its own shareholders, and continue the software giant's slide into relative unimportance as a leader in the technology product/market.
I suppose the timing of Dennis Berman's piece was no accident, appearing, as it did, as Microsoft is in talks to buy up to 5% of Facebook for a reported $300-500MM.
Tuesday's Journal carried a front-page article describing Microsoft's many, failed attempts to break into online businesses, from browsers to ad placement businesses. As I wrote here, in May of last year, I think the only way Microsoft will realize consistently superior returns for its shareholders is to break itself up into three pieces, each focusing on one business: applications software, operating software, and internet-related businesses. As it stands now, and for some years, Microsoft's diversified structure has simply led the software giant to become a veritable Gulliver, tied down in competition with many, more nimble adversaries in each of the niches in which it does business.
According to the Journal article, this time around, Microsoft is pinning everything on one Brian McAndrews, an executive whom it acquired in the deal to buy aQuantive, Inc., an online ad company, for $6B.
Of course, as the article also details,
"Just 17 months ago Microsoft hired Steve Berkowitz, from Internet search company Ask.com, as a vice president in its online group. Much as Mr. McAndrews is seen today, Mr. Berkowitz was positioned as the outsider needed to lead a cultural change at a company strong on technology but short on experience in the advertising industry.
A lack of political chops in working within the huge company and a clash with a highly respected engineering manager have hampered Mr. Berkowitz, say people familiar with the matter. Several of Mr. Berkowitz's duties were recently ceded to Mr. McAndrews."
So, once more, Microsoft has thrown money at a business in which it lags, without really re-orienting the company to address the fundamental strategic shift such actions implicitly acknowledge.
As I've written before, I don't think Microsoft truly understands, nor is currently capable, of competing totally all-out to win in the online business arena. It's still a software company trying to re-ignite growth by viewing online as a distribution platform, rather than a do-or-die business.
It seems to me, per Mr. Berman's article, that Facebook is the big winner here. Microsoft will, as usual, pay up but cede control. It won't seriously change to address the new business. And Facebook will reap a huge payday simply for carrying Microsoft ads.
If there's any downside for Facebook, it would be these: it's not selling enough of itself while the premium is stratospheric, and; it may, as Yahoo did with its payments from ATT years ago, grow fat and lazy on the passive revenue stream, only to wake up in a few years behind its competitors.
Time will tell. However, I cannot help but think that, once again, Microsoft's unfocused, half-hearted attempts to 'beat Google,' simply to do so, will enrich third parties, further impoverish its own shareholders, and continue the software giant's slide into relative unimportance as a leader in the technology product/market.
Wednesday, July 11, 2007
About Facebook
Today's Wall Street Journal featured an article on the back page of section C, which has been outsourced to breakingviews.com, concerning Facebook.
It seems that Facebook, having shunned offers to buy it for a reported $1B last year, now believes it is worth in the neighborhood of $8B. According to the Journal piece, it has doubled its current 30 million members in the last year.
The general thrust of the article is to compare Facebook to eBay and Google, in that it should spurn offers to buy it now, self-fund, and reward current owners and, potentially, public shareholders down the road. Yahoo and Google are reported to have considered buying it, thus, the $1B estimate of last fall's value.
Among the upside revenue potentials noted in the article are: Facebook's current lack of charging third-party applications developers for placing their work on Facebook; its failure to collect and sell user information on its college-aged members, and; its growing popularity among 25+ year-olds, as a sort of quasi-business-oriented networking site.
As I noted in this post last March, Facebook's success is yet another indictment of Terry Semel's failure to find a mission for Yahoo. If any company should have built the Facebook concept, it was Yahoo. Google is really in the information business, more than the networking business.
Yahoo, on the other hand, is all about providing themes, games, data, around which to hopefully group people who want to connect to similar people.
What is Facebook, if not this? And, yet, Yahoo was reportedly willing to spend a billion dollars to attempt to buy what it failed to foresee and build on its own.
It's yet another testament to innovation, good management, and Schumpterian dynamics, that amidst various online titans like Google, AOL and Yahoo, plus wannabees like Microsoft, there was, and is, still room for a guy from Harvard with an idea and some chutzpah. He did something which, in retrospect, is so completely obvious that you wonder why at least three senior executives, at AOL, Yahoo and MSN, weren't fired for missing it- converting paper-based people contact information into an online networking system.
Not only did Mark Zuckerberg do it, but he's managed to hang on and be associated with the firm's survival and continued growth in a hotly-competitive sector.
Maybe you don't have to look very far to find the next Google, per Monday's post, because it's going to be a different type of online company, like Facebook. Per Schumpeter, it's not necessary for Google to be competed into mediocrity or older age, merely for it to dominate its sector so thoroughly that innovative people just do something else for their creative, profitable outlet.
Like create really attractive, easy-to-use social networking sites. Like Facebook.
It seems that Facebook, having shunned offers to buy it for a reported $1B last year, now believes it is worth in the neighborhood of $8B. According to the Journal piece, it has doubled its current 30 million members in the last year.
The general thrust of the article is to compare Facebook to eBay and Google, in that it should spurn offers to buy it now, self-fund, and reward current owners and, potentially, public shareholders down the road. Yahoo and Google are reported to have considered buying it, thus, the $1B estimate of last fall's value.
Among the upside revenue potentials noted in the article are: Facebook's current lack of charging third-party applications developers for placing their work on Facebook; its failure to collect and sell user information on its college-aged members, and; its growing popularity among 25+ year-olds, as a sort of quasi-business-oriented networking site.
As I noted in this post last March, Facebook's success is yet another indictment of Terry Semel's failure to find a mission for Yahoo. If any company should have built the Facebook concept, it was Yahoo. Google is really in the information business, more than the networking business.
Yahoo, on the other hand, is all about providing themes, games, data, around which to hopefully group people who want to connect to similar people.
What is Facebook, if not this? And, yet, Yahoo was reportedly willing to spend a billion dollars to attempt to buy what it failed to foresee and build on its own.
It's yet another testament to innovation, good management, and Schumpterian dynamics, that amidst various online titans like Google, AOL and Yahoo, plus wannabees like Microsoft, there was, and is, still room for a guy from Harvard with an idea and some chutzpah. He did something which, in retrospect, is so completely obvious that you wonder why at least three senior executives, at AOL, Yahoo and MSN, weren't fired for missing it- converting paper-based people contact information into an online networking system.
Not only did Mark Zuckerberg do it, but he's managed to hang on and be associated with the firm's survival and continued growth in a hotly-competitive sector.
Maybe you don't have to look very far to find the next Google, per Monday's post, because it's going to be a different type of online company, like Facebook. Per Schumpeter, it's not necessary for Google to be competed into mediocrity or older age, merely for it to dominate its sector so thoroughly that innovative people just do something else for their creative, profitable outlet.
Like create really attractive, easy-to-use social networking sites. Like Facebook.
Wednesday, February 07, 2007
More Video Content Deals
Today's Wall Street Journal carried two stories concerning new media arrangements to distribute video content.
Comcast and Facebook are forming an alliance to allow videos created on Facebook to air on Comcast, prospectively on a television channel. According to the Journal article,
"....numerous links will be established between the social-networking site and Ziddio, a new Web site dedicated to "user generated content" that Comcast is developing. The best videos created by Facebook users as selected by a panel of judges will end up on Comcast's video-on-demand service and possibly on a new show that Facebook and Comcast hope will be aired by a television network."
As I recall, this summer Comcast was reported to have a fairly large staff ready to spend significant money to acquire video content for distribution from Comcast's own sites. I wrote a post about it, here. In that piece, I republished a quote from Comcast's CEO, Steve Burke, stating that he wants Comcast to be the megaportal on the net.
Frankly, this Facebook-Ziddio-Comcast deal underwhelms me. Facxebook seems to be one of those teen-twentysomething social-networking sites. It's not MySpace. Having some sort of filtering where themed video entries are judged, then packaged up for viewing, sounds a world different than just logging onto YouTube, opening an account, and uploading your video.
If this is Comcast's video content plan's best idea, I think they have trouble ahead. AppleTV is already going to threaten their television carriage revenue stream over time.
Then there's this little article from today's Journal, which will probably add to Comcast's coming difficulties. TiVo and Amazon are teaming up to offer content from the former on the latter's devices. So quiet was Amazon's Unbox service's debut that this article was the first I'd heard of it.
Apparently, Amazon allows users of its Unbox service to buy or rent, then download, video content from CBS and Paramount Pictures, a unit of Viacom, plus other sources.
TiVo, in order to attempt to reposition itself with value-added service, away from digital-on-demand cable TV, recently introduced new features that allow users to download content from the Internet, for viewing on a television.
As I look at these two articles, I see a confirmation of my sense that video content distribution is spreading with each passing month, and nobody will likely have a lock on exclusivity. The Amazon-TiVo alliance, coupled with the imminent AppleTV release, seems to put more long-term pressure on the viability of cable operator's television-service-based revenue stream. In time, ATT, Verizon, Comcast, et.al, may be fighting over the 'double-play,' rather than the 'triple-play.'
Which comes back to my suspicion that, as investments, telecommunications and cable operators are long term risks if one desires consistently superior total returns. Both groups are faced with owning and managing expensive infrastructure, probably mispriced, and both hope that video content distribution will bail them out. However, as more and more content disintermediates to the internet, then hops back to the television screen, thanks to an emerging class of server-like accessories which wirelessly download from the home personal computer, I suspect those hopes will be dashed.
Comcast and Facebook are forming an alliance to allow videos created on Facebook to air on Comcast, prospectively on a television channel. According to the Journal article,
"....numerous links will be established between the social-networking site and Ziddio, a new Web site dedicated to "user generated content" that Comcast is developing. The best videos created by Facebook users as selected by a panel of judges will end up on Comcast's video-on-demand service and possibly on a new show that Facebook and Comcast hope will be aired by a television network."
As I recall, this summer Comcast was reported to have a fairly large staff ready to spend significant money to acquire video content for distribution from Comcast's own sites. I wrote a post about it, here. In that piece, I republished a quote from Comcast's CEO, Steve Burke, stating that he wants Comcast to be the megaportal on the net.
Frankly, this Facebook-Ziddio-Comcast deal underwhelms me. Facxebook seems to be one of those teen-twentysomething social-networking sites. It's not MySpace. Having some sort of filtering where themed video entries are judged, then packaged up for viewing, sounds a world different than just logging onto YouTube, opening an account, and uploading your video.
If this is Comcast's video content plan's best idea, I think they have trouble ahead. AppleTV is already going to threaten their television carriage revenue stream over time.
Then there's this little article from today's Journal, which will probably add to Comcast's coming difficulties. TiVo and Amazon are teaming up to offer content from the former on the latter's devices. So quiet was Amazon's Unbox service's debut that this article was the first I'd heard of it.
Apparently, Amazon allows users of its Unbox service to buy or rent, then download, video content from CBS and Paramount Pictures, a unit of Viacom, plus other sources.
TiVo, in order to attempt to reposition itself with value-added service, away from digital-on-demand cable TV, recently introduced new features that allow users to download content from the Internet, for viewing on a television.
As I look at these two articles, I see a confirmation of my sense that video content distribution is spreading with each passing month, and nobody will likely have a lock on exclusivity. The Amazon-TiVo alliance, coupled with the imminent AppleTV release, seems to put more long-term pressure on the viability of cable operator's television-service-based revenue stream. In time, ATT, Verizon, Comcast, et.al, may be fighting over the 'double-play,' rather than the 'triple-play.'
Which comes back to my suspicion that, as investments, telecommunications and cable operators are long term risks if one desires consistently superior total returns. Both groups are faced with owning and managing expensive infrastructure, probably mispriced, and both hope that video content distribution will bail them out. However, as more and more content disintermediates to the internet, then hops back to the television screen, thanks to an emerging class of server-like accessories which wirelessly download from the home personal computer, I suspect those hopes will be dashed.
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