As Social Sites’ Shares Fall, Some Hear Echo of 2000(nytimes.com)
nytimes.com
As Social Sites’ Shares Fall, Some Hear Echo of 2000
http://www.nytimes.com/2012/07/28/technology/as-social-sites-shares-fall-some-hear-echo-of-2000.html?pagewanted=all
10 comments
I don't understand why Facebook can't deliever targeted ads similar to how AdSense works. They already control the "comment boxes" of the web. So essentially, they know you are logged in at such and such site. Why not target the ads of the site to you? Seems like they would print money.
No they won't.
Facebook's users online intent is different from Google's users. People do not go to Facebook to show buying intent, they go their to pass time. On the contrary people search Google with an intention to buy hence Google can print money but Facebook cannot.
Facebook's users online intent is different from Google's users. People do not go to Facebook to show buying intent, they go their to pass time. On the contrary people search Google with an intention to buy hence Google can print money but Facebook cannot.
Obviously Facebook can't match the search-intent targeting of AdWords. But grandparent post mentioned AdSense - contextual ads on other sites. Facebook is amassing the data and sensors to compete there... it's just a smaller and lower-margin business than AdWords.
The A-Number-One thing Facebook needs to do in order to improve their ad business is to increase the use of the "like" buttons, both on and off their site. While not Intent-To-Purchase, it is very much Interest, and from what I've seen in an anecdotal sense it's what makes their ads target well or not.
If I were in charge of their ad department, I'd be focused extremely tightly on increasing that behavior in users.
If I were in charge of their revenue in general, however, I'd be focused on Facebook Credits and how to become the top trusted marketplace for person-to-person transactions worldwide.
If I were in charge of their ad department, I'd be focused extremely tightly on increasing that behavior in users.
If I were in charge of their revenue in general, however, I'd be focused on Facebook Credits and how to become the top trusted marketplace for person-to-person transactions worldwide.
Facebook can easily grab the search queries from the header and use that to serve ads based on explicit searches.
I think the situation for facebook is worse than that, actually. I think they will get disrupted and lose their userbase before they have a chance to monetize it to the degree that investors are expecting.
I'm predicting similar. Facebook is a company that's had 8 years to learn how to monetize, despite all the obvious ways of doing it (premium upgrades, etc.) so the wise bet is that if they haven't learned to juice it by now, any more than they already have, then they never will. Is it possible they might? Yes. But that's not the smart way to bet given the facts. Apple and Google and Amazon have tons of talented folks and have shown they can monetize and diversify their products. Facebook really hasn't. The Instagram buy, especially it's magnitude, smelled like fear to me.
Who's going to disrupt them? Someone who can monetize the masses better? People are going to flock to a social network with more ads? With more fees?
I've consistently thought that people underestimate the lock-in Facebook has. They have one of the strongest, if not the strongest, network effect in the history of mankind. They can be disrupted, but only when there's some sort of major leap in technology that wholly redefines what a social network is. Adding incremental this or add-on that won't get anyone anywhere.
I've consistently thought that people underestimate the lock-in Facebook has. They have one of the strongest, if not the strongest, network effect in the history of mankind. They can be disrupted, but only when there's some sort of major leap in technology that wholly redefines what a social network is. Adding incremental this or add-on that won't get anyone anywhere.
They can be disrupted by adding layers on top. Consider a browser extension or mobile app or whatever that aggregates social, and that proxies interactions with Facebook for you when you try to send something to someone on Facebook, but that first tries to do an end run against Facebook.
E.g. consider the abundance of "SMS apps" that sends the message as an IM over their own network if both sender and recipient are users, but that will revert to SMS otherwise. Many of them sell themselves as cheaper, but also as having more features, such a more flexibility in what you can send, instant read confirmations etc.
Now, there's plenty of chances for lawsuits and extended wars of attrition trying to block it for someone trying to do that to facebook, but I think long term they're going to be a too tempting target.
E.g. consider the abundance of "SMS apps" that sends the message as an IM over their own network if both sender and recipient are users, but that will revert to SMS otherwise. Many of them sell themselves as cheaper, but also as having more features, such a more flexibility in what you can send, instant read confirmations etc.
Now, there's plenty of chances for lawsuits and extended wars of attrition trying to block it for someone trying to do that to facebook, but I think long term they're going to be a too tempting target.
> They can be disrupted, but only when there's some sort of major leap in technology that wholly redefines what a social network is.
such as Polaroid-like image filters
such as Polaroid-like image filters
This is a good point to go into. At this point Facebook essentially needs to monetize their userbase to an extraordinary degree. That's the debt they've incurred due to the pricing of their IPO. That will likely force them to annoy their users with more ads, etc.
However, consider an upstart with nothing to prove. If they can put together a facebook competitive technology stack at a lower cost they can actually monetize less than facebook, and steal users that way. The fact that they would potentially make, say, half or a tenth as much revenue per user is irrelevant, because it would be their revenue vs. facebook's revenue.
However, consider an upstart with nothing to prove. If they can put together a facebook competitive technology stack at a lower cost they can actually monetize less than facebook, and steal users that way. The fact that they would potentially make, say, half or a tenth as much revenue per user is irrelevant, because it would be their revenue vs. facebook's revenue.
I think it has a chance of going both ways, what both you an TokenAdult were saying, depending on how they execute.
That said, there isn't any viable replacement out there yet, not even one that's at the very beginning stage with only a couple thousand users. My thinking is that even if Facebook executes mediocrely from here on out, Zuck is at least smart enough to keep the whole thing afloat until something else comes along that's seriously disruptive.
That's going to happen, but it just hasn't yet. You have to keep in mind that the thing that replaces Facebook isn't going to look anything like Facebook. If anything it's going to look more like Udacity, Starbucks, YouTube, etc.
That said, there isn't any viable replacement out there yet, not even one that's at the very beginning stage with only a couple thousand users. My thinking is that even if Facebook executes mediocrely from here on out, Zuck is at least smart enough to keep the whole thing afloat until something else comes along that's seriously disruptive.
That's going to happen, but it just hasn't yet. You have to keep in mind that the thing that replaces Facebook isn't going to look anything like Facebook. If anything it's going to look more like Udacity, Starbucks, YouTube, etc.
> That said, there isn't any viable replacement out there yet, not even one that's at the very beginning stage with only a couple thousand users.
I would say that Google+ is probably both viable and has more than a "couple thousand of users", though right now it certainly isn't getting enough traction to threaten facebook.
But if something caused a mass exodus from Facebook, Google+ would probably benefit a lot. Either that, or some new entrant.
I would say that Google+ is probably both viable and has more than a "couple thousand of users", though right now it certainly isn't getting enough traction to threaten facebook.
But if something caused a mass exodus from Facebook, Google+ would probably benefit a lot. Either that, or some new entrant.
It's probably true that Facebook will never effectively monetize 1bn users (without charging for Facebook access) but I don't see what indication there is they'll get "disrupted" and lose everything.
If anything Facebook is in an even stronger position right now when you look at what has happened with google+. The largest internet brand (Google) can't even beat Facebook with a (supposedly) superior product and already huge control over the internet.
Facebook is going to be around for a long time.
If anything Facebook is in an even stronger position right now when you look at what has happened with google+. The largest internet brand (Google) can't even beat Facebook with a (supposedly) superior product and already huge control over the internet.
Facebook is going to be around for a long time.
It's possible though that people are just losing interest in the type of experience Facebook provides. If that is the case then Google+ just arrived at the wrong time. No matter how good it is if the audience is losing interest in the whole concept it won't do well. So the relative failure of Google+ might not indicate that Facebook is in a strong position, but that rather the whole "social industry" is in a weakening position.
Google+ is not a fundamentally different experience from Facebook. It's slightly different, and that isn't enough.
The launch for google+ was so upsetting and disappointing. I oh so badly wanted to tell my friends/family to join me on it, but I didn't care enough to make an account separate from my google apps account, which were restricted from google+ for quite a while. I know I'm an incredibly small fish in a big pond, but I believe a significant percentage of google apps users would have gladly evangelized for google.
Was the product itself really so disappointing, or was it more that people have just grown tired of social networking? It seems like Facebook may just be coasting on momentum and when Google+ arrived people just didn't have any motivation to sign up for yet another social network.
I made no mention of the product itself. InclinedPlane below further elaborates.
I think the biggest problem with google+'s launch was not the product or that people have grown tired of social networking, but the launch itself. First, they screwed up support for google apps users which is a huge mistake, that is the core of the most dedicated and tech savvy google supporters, alienating them on launch was a disaster. Second, the slow rollout through limited and controlled invitations was unhelpful for a service of that sort. If they had scaled up earlier the launch would have gone much better.
Facebook is rife for disruption, the fact that google hasn't been able to pull it off doesn't mean that it isn't possible. Few of facebook's users love facebook, they use it because that's where everyone they care about is. Almost the entire value of the site is due to network effect and a merely competent execution of the site's core features.
Google imagines that they can take away marketshare from facebook by implementing mostly the same featureset with only a few changes that only a tiny proportion of people care about (with the exception of hangouts, which so far is google+'s killer feature). But that sort of tactic only works if you can bribe 51% of the userbase over to your side in the first place. In that case then everyone else would follow, but in trying to disrupt an entrenched competitor it's going to be an uphill battle at best.
There are two ways to disrupt facebook, I think. One: on technology / featureset. Facebook has a terrible mobile app, that's an easy weakness to exploit. Google+'s hangouts are another aspect of adding features that facebook lacks. If you manage to come up with enough compelling features and qualities perhaps you can get people to switch. Two: socially. Facebook is a very one-size-fits-all system for social networking, but that's not the way social networks in the real world view themselves. For example, a site, or federation of sites, that more explicitly catered to different interests through layout, graphic design and branding, feature-choice, etc. could have a higher appeal to certain groups than facebook. A lot of facebook's appeal is because it is, or was, perceived as "cool", if other sites can change that perception then they can drain traffic away from facebook. Maybe not all of it, but if a thousand different sites each take a thousandth of FB's traffic, then what happens?
The most naive assumption is that facebook won't be disrupted. Nearly every online company is going to be disrupted in the next decade, the question is whether or not those companies can respond to it effectively and manage to survive.
Google imagines that they can take away marketshare from facebook by implementing mostly the same featureset with only a few changes that only a tiny proportion of people care about (with the exception of hangouts, which so far is google+'s killer feature). But that sort of tactic only works if you can bribe 51% of the userbase over to your side in the first place. In that case then everyone else would follow, but in trying to disrupt an entrenched competitor it's going to be an uphill battle at best.
There are two ways to disrupt facebook, I think. One: on technology / featureset. Facebook has a terrible mobile app, that's an easy weakness to exploit. Google+'s hangouts are another aspect of adding features that facebook lacks. If you manage to come up with enough compelling features and qualities perhaps you can get people to switch. Two: socially. Facebook is a very one-size-fits-all system for social networking, but that's not the way social networks in the real world view themselves. For example, a site, or federation of sites, that more explicitly catered to different interests through layout, graphic design and branding, feature-choice, etc. could have a higher appeal to certain groups than facebook. A lot of facebook's appeal is because it is, or was, perceived as "cool", if other sites can change that perception then they can drain traffic away from facebook. Maybe not all of it, but if a thousand different sites each take a thousandth of FB's traffic, then what happens?
The most naive assumption is that facebook won't be disrupted. Nearly every online company is going to be disrupted in the next decade, the question is whether or not those companies can respond to it effectively and manage to survive.
"Another couple of days like this and the great tech bubble of 2012 might recede into history."
One can only hope. The early 2000s was one of the best periods in the history of the Internet. The stuff that's hot today is all just extensions of stuff that was pioneered back then. Having the money go away for a bit so that folks can once again go back to truly innovating without the insane short term pressure can only be healthy for the longterm state of things.
One can only hope. The early 2000s was one of the best periods in the history of the Internet. The stuff that's hot today is all just extensions of stuff that was pioneered back then. Having the money go away for a bit so that folks can once again go back to truly innovating without the insane short term pressure can only be healthy for the longterm state of things.
I'm starting to wonder if FB has discovered/created the world's lowest value entertainment. If there's nothing better to do then sure I'll consume my "friends" food photos and drinking stories. But it doesn't take much to steer my attention away. Simple things like boiling water for coffee evaporate my fixation on some friend's inane status message.
If FB's content is really that valuable then put it behind a paywall and cha-ching! Just like Netflix or Hulu+. However I think it's the first massive-scale "default because I have nothing better to do" entertainment. Which may not lend itself to monetization as well as search traffic.
If FB's content is really that valuable then put it behind a paywall and cha-ching! Just like Netflix or Hulu+. However I think it's the first massive-scale "default because I have nothing better to do" entertainment. Which may not lend itself to monetization as well as search traffic.
Does anyone else find it odd to lump Netflix in with Facebook and Zynga? They offer entirely different things, have different business models, relate to the public and their customers differently, and as far as I can tell, different struggles.
I agree, particular given that Netflix's position is not due to the nature of their business modal, but a specific strategic blunder with pricing.
I think Facebook actually has a chance to stick around, but the mistake of investors was to project its success to other social companies. FB may be the last mover to the social market.
Facebook's going to be here a bit longer. Sure, I think we've all noticed we use it less than we used to, but Facebook will only slowly decline until a truly superior replacement comes along. Then you can kiss it goodbye.
It is all about the success of mobile adoption + monetization of mobile.
Facebook is well positioned for it. The android user experience is very slippery.
Facebook is well positioned for it. The android user experience is very slippery.
This talk of "echoes of 2000" annoys me.
I see this as the market acting reasonably rationally actually. Facebook shares are off ~40% from their IPO because they were overvalued. They gained valuation in a hype bubble on secondary markets with limited volume between a small set of players. Once exposed to greater liquidity, easier price discovery and a wider market, the share price has headed towards something I would consider more realistic.
The risks for Facebook are enormous. Apple and Google (disclaimer: I work for Google in display advertising) are far more established and have a much broader product offering than Facebook across the Web, mobile and other areas. They are both profitable and can sustain a long drawn out campaign.
Facebook is reliant on social-gaming income (which is increasingly going mobile and out of Facebook's ecosystem to Apple's and Google's) and what amounts to display advertising, where they are competing with Google's Doubleclick offerings.
The price paid for Instagram is a clear warning sign on the risks to Facebook, that a company of 13 years in 2 years can become what amounts to an existential threat to Facebook should concern any Facebook investor.
I also stand by my (many) previous statements that I think the utility and value of "social search" is far more limited than it's hyped up to be.
But whatever the case, these are real companies with real revenues. This is nothing like 2000.
I see this as the market acting reasonably rationally actually. Facebook shares are off ~40% from their IPO because they were overvalued. They gained valuation in a hype bubble on secondary markets with limited volume between a small set of players. Once exposed to greater liquidity, easier price discovery and a wider market, the share price has headed towards something I would consider more realistic.
The risks for Facebook are enormous. Apple and Google (disclaimer: I work for Google in display advertising) are far more established and have a much broader product offering than Facebook across the Web, mobile and other areas. They are both profitable and can sustain a long drawn out campaign.
Facebook is reliant on social-gaming income (which is increasingly going mobile and out of Facebook's ecosystem to Apple's and Google's) and what amounts to display advertising, where they are competing with Google's Doubleclick offerings.
The price paid for Instagram is a clear warning sign on the risks to Facebook, that a company of 13 years in 2 years can become what amounts to an existential threat to Facebook should concern any Facebook investor.
I also stand by my (many) previous statements that I think the utility and value of "social search" is far more limited than it's hyped up to be.
But whatever the case, these are real companies with real revenues. This is nothing like 2000.
I'm with you on this one, I lived through 2000 and I can tell you that this is no 2000.
The folks managing the IPO all have egg on their faces, but nobody's trust fund got destroyed, no mass layoffs, no VC suicides, none of the "Hey the music stopped oh shit I'm still long on X, Y, or Z"
Facebook brought in over a BILLION dollars last quarter. They "lost" money because they are doing the 'count stock options as an expense' thing that was foisted on Tech companies post bubble. But they actually 'earned' a quarter billion dollars. Compare that to any number of companies that never earned a dime from founding, through IPO, through ignominious death. Sheesh.
One of the thing that is going to bite both Google and Facebook are some of the insane salaries they signed up for to keep people at one place or the other or to switch. Those are great engineers but most of them are never going to have a lifetime value of millions, even if they commit 20 years of their life to the company. That is a correction I don't look forward too, conversations like "Excuse me? You were thinking maybe $280K to start and an annual bonus plan? Uh Next!"
The folks managing the IPO all have egg on their faces, but nobody's trust fund got destroyed, no mass layoffs, no VC suicides, none of the "Hey the music stopped oh shit I'm still long on X, Y, or Z"
Facebook brought in over a BILLION dollars last quarter. They "lost" money because they are doing the 'count stock options as an expense' thing that was foisted on Tech companies post bubble. But they actually 'earned' a quarter billion dollars. Compare that to any number of companies that never earned a dime from founding, through IPO, through ignominious death. Sheesh.
One of the thing that is going to bite both Google and Facebook are some of the insane salaries they signed up for to keep people at one place or the other or to switch. Those are great engineers but most of them are never going to have a lifetime value of millions, even if they commit 20 years of their life to the company. That is a correction I don't look forward too, conversations like "Excuse me? You were thinking maybe $280K to start and an annual bonus plan? Uh Next!"
Of course you count stock options as an expense.
If the event results in a loss of value for existing investors isn't called a loss what should it be called?
If the event results in a loss of value for existing investors isn't called a loss what should it be called?
This is a troll obviously but for those of you too young to remember, this link captures most of the debate: http://www.nysscpa.org/cpajournal/2005/1105/essentials/p38.h...
From that page is this quote:
"David Zion, an analyst at Bear, Stearns & Co., estimated that S&P 500 companies would have reported an average of 9% less earnings in 2000 if options had been expensed on the income statement. For tech companies, this reduction would have been even greater; for some, profits would have turned to losses."
Which is the case for Facebook (profits turning to losses).
From that page is this quote:
"David Zion, an analyst at Bear, Stearns & Co., estimated that S&P 500 companies would have reported an average of 9% less earnings in 2000 if options had been expensed on the income statement. For tech companies, this reduction would have been even greater; for some, profits would have turned to losses."
Which is the case for Facebook (profits turning to losses).
Right. If it wasn't stock options it would be salary.
The folks managing the IPO all have egg on their faces
To the contrary, they have every reason to be delighted with the result! An IPO that pops dramatically after the beginning of trading means money left on the table that the investors and selling insiders (those "managing the IPO") won't get. It may be a disappointment to the rank-and-file employees with lockup agreements, and an awkward thing to explain to potential employees, but from the perspective of a pre-IPO stockholder, it was a great result.
As for whether this is 2000 again or not, time (and more data points) will tell. There were successful companies back then, too, that are still with us now. The transition to more traditional valuations will eliminate the indefensible businesses but bring stock prices, VC funding, and (as you point out) salaries to more sustainable levels.
To the contrary, they have every reason to be delighted with the result! An IPO that pops dramatically after the beginning of trading means money left on the table that the investors and selling insiders (those "managing the IPO") won't get. It may be a disappointment to the rank-and-file employees with lockup agreements, and an awkward thing to explain to potential employees, but from the perspective of a pre-IPO stockholder, it was a great result.
As for whether this is 2000 again or not, time (and more data points) will tell. There were successful companies back then, too, that are still with us now. The transition to more traditional valuations will eliminate the indefensible businesses but bring stock prices, VC funding, and (as you point out) salaries to more sustainable levels.
They have incentive to get a close enough valuation. Pop too much and they leave money on the table (since they get commission on total amount raised.), drop too much and their clients may be signing up less money for their next IPO.
I agree that it's more that the chosen examples are examples of overblown IPO valuations.
Pretty shocking graph though: http://www.nytimes.com/imagepages/2012/07/28/technology/28fa...
Pretty shocking graph though: http://www.nytimes.com/imagepages/2012/07/28/technology/28fa...
Zynga and GroupOn look bad there and they should as most people agreed they were never solid foundational businesses to start with.
If you take Zynga and GroupOn out of the graph though, the Facebook stock could just as well be on a slightly jittery ride to approaching an equilibrium.
If you take Zynga and GroupOn out of the graph though, the Facebook stock could just as well be on a slightly jittery ride to approaching an equilibrium.
The main difference regarding today's "Social Sites" is they have money in the bank earned from advertising, etc. (Zynga over $1 billion, twitter over $600 million, facebook making over $1 billion per quarter, etc).
I thought Facebook matched the investor expectations this quarter yet wall st. don't have confidence in them. I find this confusing.
And by the way, if you look at the stock market for tech companies for last two days. Almost all the tech giants (Google, MSFT, Apple, LinkedIn, Amazon, Yahoo etc.) were up. So I don't see if we can say it's like 2000 when stock markets crashed!
And by the way, if you look at the stock market for tech companies for last two days. Almost all the tech giants (Google, MSFT, Apple, LinkedIn, Amazon, Yahoo etc.) were up. So I don't see if we can say it's like 2000 when stock markets crashed!
Facebook's price drop is just reality setting in. There was a lot of hoping and wishing going on that was dispelled with hard numbers.
Things have changed since back then, but have a read of this news story from early 2000, it sounds kind of similar to now in some regards ...
http://news.bbc.co.uk/2/hi/business/719474.stm
http://news.bbc.co.uk/2/hi/business/719474.stm
What's different about today is that the web and Facebook seem far more integrated into every part of daily life.
I don't know if that means things will better, things will be worse or doesn't mean anything.
I don't know if that means things will better, things will be worse or doesn't mean anything.
"In an e-mail sent to founders last month, Paul Graham, the co-founder of Y Combinator, an influential start-up incubator, warned of possible headwinds. But Friday he said in effect not to worry — at least not yet.
"'It’s too early to notice any effect on valuations,' Mr. Graham said. 'Personally though, I have a lot of confidence in Facebook. I expect this is just a random fluctuation.'"
My prediction about Facebook is "Facebook will go the way of AOL, still being a factor in the industry years from now, but also serving as an example of a company that could never monetize up to the level of the hype surrounding it." I could be wrong, but that's my sense of where Facebook is in the market. Of course pg has a much better track record than I have in making investments, and my prediction is not wholly inconsistent with some near-term upside in Facebook's share price.