Thursday, January 06, 2011

FaceBook Friends

When a (tad mentally fragile is the impression I get) sensible shoe wearing 42-year old (from Brighton, natch), miffed at her significant other's infidelity, announced on Facebook that she'd taken an overdose, none of her 1,000-plus 'friends' called an ambulance.

Tangentially, I see that Facebook has 550 million users and is valued at 50 billion dollars.

We seem to be reliving the dot-com boom. Anyone remember Freeserve, Dixon's free (well, local-call-cost) ISP from pre-broadband days ?

Freeserve floated on the stock market in July 1999 (as Freeserve.com plc), at which point they had approximately 1.5 million subscribers and were valued at between £1.31bn and £1.51bn ($2.02bn and $2.34bn). By September 2000, Freeserve had more than 2 million active subscribers. This was vastly more than the incumbent telephone provider BT, something that was unique for a European ISP. Freeserve was bought by the France Télécom-owned company Wanadoo in 2000 for £1.65bn ($2.37bn).
I remember around float time thinking - "£1,000 per subscriber - and no subscription fee! How in heaven's name can they be worth even a tenth of that ?". I was an early adopter, getting Web access in the early 90s (when there was no local number to dial!), but even I was only spending a few hundred pounds a year online, and I just couldn't see how Freeserve were ever going to make hundreds, let alone thousands, out of each customer. They never did.

Facebook are valued at getting on for $100 per subscriber - which subscribers include my wife and four children. No way are they currently anywhere near making that sort of money out of them. The valuation is an order of magnitude lower than 12 years back, but it's still much too high.

Does anyone know what the theory behind this valuation is ? OK, there's advertising - but IMHO that's not going to be anything like $10 p.a. per user in post-cost profit - $5 billion a year. And if that were possible, what's the likelihood that it will stay the course and not go the way of MySpace? Up to now - admittedly a short history - Internet social network sites have been popular for a few years then the buzz wears off as something new arrives. Unless Facebook can somehow capture the 'something new' - i.e. make it more likely that new entrants to social networking will choose to implement inside rather than outside Facebook (e.g. Farmville, which my daughter and her friends all played last year but have now stopped), there's a risk that it'll in its turn suffer the fate of Bebo, worth $850 million only a couple of years ago and now worth $10 million as users moved to Facebook.

Let's assume it survives, and Mark Zuckerberg becomes the Bill Gates of social networking. I still can't see it as worth $50 billion - unless they can find a way of sucking in shopping sites, like some black hole of the Web. In which case Google vs Facebook will be a battle to behold.

BTW, is it just me, or has Google become a worse search engine lately ? It doesn't seem to pick up those obscure pages that perfectly match the search criterion any more. Instead you wade through pages of link-farming guff and big commercial sites before finding what you want on page 7.

23 comments:

Peter Risdon said...

Google - yes, I've noticed that.

They might be in the process of becoming more of an application services provider. Google Apps seems very succesful right now, and it's much stickier than search or social networking - moving an entire company's email is a biggie.

JuliaM said...

Yes, I've noticed that Google isn't what it once was, but then, it's still the only game in town. I've dabbled with Bing, but it's not been a very satisfactory experience.

TDK said...

I don't think you can simply divide the total value by number of users and get a relevant number. If I was to construct an argument I would say that the market leader has a value that reflects where they are expected to be in the future. That is to say, the user base is anticipated to expand to a point where the individual return becomes more realistic.

Having said that I tend to agree with you, that it is overvalued. Investors fail to take into account that the cost of entry is not particularly high and the business model is, shall we say, ill defined.

Anonymous said...

Tomorrow's crash starts here. GS have effectively concocted a 50 billion valuation for Facebook by there 450 million investment....

...which is being packaged as an investment instrument due to net them 1.5 billion.

Which leverages a 'created' on paper value threefold.

What could possibly go wrong?

Regards

Edmund Berk

Anonymous said...

alltheweb.com has always been bettr than google. Yahoo bought it years ago and let it alone - until recently, they have absorbed in to yahoo search. Now its turned to s**t.

In allthewebs's heyday I could type "fred bloggs garage" and the first pages of returns would all contain that exact phrase.

Now you get this. Whats the use of that? Its been reduced to googlesque crapness.

So much so I might as well use google and be done with it.

Anonymous said...

I don't think you can simply divide the total value by number of users and get a relevant number. If I was to construct an argument I would say that the market leader has a value that reflects where they are expected to be in the future. That is to say, the user base is anticipated to expand to a point where the individual return becomes more realistic.

Im not having a go TDK but all that would have been said, was said, back in dot com boom days. Buying a stake in the future, a future that has resolutely failed to come into existence.

I suspect the real value of FB and Google are as databases, what people look at, who they know etc etc. Youtube(ie google) has massive useage, how can it be making any money?

Anonymous said...

In my more cynical moments, these days that means when Im awake, I fear that FB is what TPTB would like the internet to become. Lots of superficial interactivity but all that tiresome debate and information exchange swept away.

There are plenty of places where at least superficailly we can say, discuss, the unsayable. Not on Facebook.

For one; if I were start a FB group to discuss the demerits of immigration, only antis would show up, or knuckle draggers. The liberals wouldnt take part at all. Thus no debate. Go to a liberal page on FB otoh and say something 'robust' and a day later you are banned. Thus no debate takes place. The liberals will continue to sit in their warm glow of their own tolerance, safe in the knowledge that they can defeat the right on the issues. Twats.

Secondly, anonymity. Most people active on FB are there under their own ID, they are linked to their real world friends as well as their 100s of psuedoFB frinds (1000s if they are a pretty girl). That means anyone with a mind to say something unorthodox has to put themselves on the line to join a group or comment there. Therefore the social policing of debate - "You cant say that!" - which operates to maintain liberal orthodoxy in the real world is extended into the virtual.

I dont enter into these debates on FB, to the degree they exist at all, under my own ID obviously, I use a made up name.

Anonymous said...

Somebody mentioned Stephen Hawking going to Africa here the other day, 'The African Einstein search", the futility of it.

After reading that I happened to notice a Facebook page about Hawking and there was even a discussion about this fatuous search. I say discussion, on FB that means of a collection of liberals stroking each others egos about how caring they are.

I thought I would bring a downer on the party, a note of racial realism. Only to find while I could join the group, I couldnt post.

Then I remembered!

I joined it a couple of years ago and left those same unwelcome comments. I was banned, my comments deleted and Im still banned! There have been no new comments in ages of course because the African Einstein has not been found, won't be found.

Hurrah for the Age of Facebook Democracy!

Wildgoose said...

I refuse to join Facebook.

It's the perfect tool for an authoritarian society - all your likes and dislikes laid bare along with who all your friends and associates are.

Big Brother's wet dream.

Anonymous said...

Of course, the declining usefullness of Google is directly caused by its need to turn financial expectations into reality. the only way they can actually make money is by selling advertising space and boosting commercial links - which in turn drives users away and creates space for an up-and-comer to replicate old-skool Google-style searching and to take all their customers. As neat a Catch-22 as you could hope to devise.

Laban said...

It's possible that they'll find an African Einstein - the odds would just be better in Korea or North London, that's all. But that doesn't mean that black (and working class white) educational attainment in the UK couldn't be raised dramatically. There's no need for it to be so low. But that would require a 180 degree about turn in education practice.

Weekend Yachtsman said...

Indeed.

I've been wondering where the value is for ages; there just seems to be no revenue stream I can see, at all.

Advertising? I have never seen an advert on facebook, not once, ever.

Does it all depend on those "apps" you can add on if you're daft enough to want all your details sucked away to some game developer's spam database (or worse)?

I wouldn't know, because I never use any of them. I have an instant knee-jerk against anything that says "do you wish to install..." Install! Alarms! Big red lights flashing! Stop, go and do something else right now!

But I guess most Facebook users are not like that.

Recusant said...

Laban, re. your Google problem, try www.blekko.com. Much more focused search, no content farming nor spam. Happy to be of service and, yes, Facebook is overvalued, but the cultists over at Goldmans will still make a pretty penny.

Laban said...

I think it was Alphaville who said that the big money in Facebook will be made before the float. At float time the suckers/retail punters will be pulled in.

Anonymous said...

O/T Laban, and a fairly lightweight "Fail" piece, but this might be of interest

http://www.dailymail.co.uk/femail/article-1344818/BBC-Radio-DJ-Lauren-Laverne-says-Dont-wait-long-start-family.html

Anonymous said...

blekko does seem to have an aussie bias, though...

Occasional CIF Ranter said...

Secondly, anonymity. Most people active on FB are there under their own ID, they are linked to their real world friends as well as their 100s of psuedoFB frinds (1000s if they are a pretty girl). That means anyone with a mind to say something unorthodox has to put themselves on the line to join a group or comment there. Therefore the social policing of debate - "You cant say that!" - which operates to maintain liberal orthodoxy in the real world is extended into the virtual.

If you want to annoy lefties, have a good rant on a slow work day, maybe even genuinely get into a debate, or are maybe you are looking for somewhere to post nonsense because you are bored out of your skull, CIF can be quite a good site for these things.

As I see it though, the usefulness of Facebook, could be in that it enables you, as I believe Don Corleone said, to keep your friends close - and your enemies closer.
;)

And of course there is nothing to stop you having secret friends or posting partial or plain nonsense WRT your interests. Is there?

Occasional CIF Ranter said...

oops forget to say:

post on CIF with a nonsense name if you want to debate controversial issues.

Steely Dan said...

IS tourettes syndrome caused by demonic possession, Steely Dan debates on CiF.

Sam Tarran said...

I didn't understand where that valuation came from either. But I just assume it was because I never bothered to get Facebook in the first place.

Laban said...

Congratulations Sam on your uni place !

Anonymous said...

Occasional CIF Ranter - Agree. I do go on Cif, as I said there are plenty of places to debate, at the momenet.

But my point, perhaps not clearly made, was that Facebook serves as a model for the internet that TBTB would like to see. Imagine CiF transplanted into Facebook.

Occasional CIF Ranter said...

But my point, perhaps not clearly made, was that Facebook serves as a model for the internet that TBTB would like to see. Imagine CiF transplanted into Facebook.

Oh I can see that might stifle many people.

OTOH, I would dearly, genuinely love, some of my facebook 'friends' to argue some of their nonsense beliefs in a properly moderated forum, like CIF, where others can read the 'evidence' and evaluate the 'arguments'.

Unfortunately some people, such as ex-wives who still have your kids, and crazy stalkers etc, are impossible to get away from. But maybe, just maybe, they can be contained on somewhere like facebook.