The Facebook bear case July 23, 2007Posted by Bernard Lunn in Deal-making, social networks.
The amount of energy spent on whether Facebook is the next big thing is extraordinary. If Facebook was public I can understand traders spending time to figure out whether to buy, sell, hold or short. So lets pretend that it is public and has that $6bn market cap that people are throwing around and that would justify turning down the $1.6bn offer from Yahoo. Would you buy, sell, hold or short? My answer – I would not buy (I also would not short as crazy valuations can stay crazy for a long time and outlast the shorts). Here is why:
- The monetization/click through problem. There maybe a hidden monetization strategy, like Adwords for Google, but if this is reliant on CPM rates holding up….This is like expecting click-through from e-mail, when the writer/reader is focussed on communicating. There is no “database of intentions” similar to Search.
- The possible reverse network effect. As Facebook grows, the cool/exclusive factor recedes and the spamming grows and that leads to more exits. This won’t show up initially as there is no reason to close down your Facebook account, you just ignore it. It will show up – already is showing up – in low click-throughs.
- The Silicon Valley/Techcrunch 5,000 Web 2.0 crowd is fickle and will move onto the next big thing. The technology industry in the end always favors open standards, which would indicate OpenID and other standards that enable people to cross easily between multiple networks.
Would I love some founder stock? Of course.
Would I buy if IPO was today at over $2bn? No.
Would I/do I use Facebook? Yes, because I am interested in social networking as a business/technology and it does not cost me a dime.
Have I found Facebook useful yet? No. When i first joined it offered a network by zip code and that was totally useless. When Read Write Web set up a group I joined but that was an experiement and I go to RWW when I am interested in RWW community, not to Facebook.
Would I build an “app” for Facebook? I am looking around to see what might make sense to meet some specific objectives. I would experiment with very little investment, which is what it looks like others are doing.
Would I desert LinkedIn or spend time to move my network over in hopes of increasing it? No. LinkedIn is only marginally useful and I would not expect Facebook to be worth the effort.
What would change my mind:
- A monetization strategy beyond CPM that does not involve spamming people.
- An app vendor making serious money (note, making money not just getting a gazillion people to look at the widget a few times)