Commentary: Facebook, Hype, and Future

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As you may have been noticing lately, one of the hot topics here on Rev2 and the blogosphere in general has been Facebook. Why? Because to Silicon Valley, it’s deja vu all over again — think Google pre-IPO (or, the idea of cashing in early and becoming 5x richer in 4 years.)

Recently having got an iPhone (*proudly* one of the first in South Island, New Zealand, thank you :-) ), I decided to spend a an hour just on reading the latest Facebook news and opinion pieces from different bloggers. One that struck a chord with me was Kara Swisher’s piece on ’15 Billion More Reasons to Worry About Facebook.’

Lately, I’ve been really positive about Facebook, its future, the hype, and everything else that surrounds it. Against whole ‘Yeah, Facebook, so what?’ view, I’ve been — without even thinking about it — on Facebook’s side. People have said ‘It’s just what MySpace was yesterday and it’ll be old news tomorrow,’ while I’ve been thinking, ‘No, no! Facebook’s different!’

But reading Kara Swisher’s article today had me think otherwise.

In the article, Kara makes four points about why it isn’t going to be what most people think it is. Paraphrasing her points on each:

  1. Facebook is not Google: Google made $3.9 billion in revenue last quarter, Facebook made $150 million. Here’s the kicker: most of it probably came from Microsoft as part of its guaranteed revenue deal (case-in-point: it’s not even real ad dollars.)
  2. Potential is not actual: Facebook is just today’s PointCast, Geocities, Netscape, AOL, and Yahoo! (I’ll add: AltaVisa, Excite, Broadcast.com, eGroups).
  3. Most techies were not popular in high school: Referring to Silicon Valley’s crazy Facebook adoption over MySpace.
  4. A sucker is born every minute: Facebook’s current investors have put in about $32 million on a $525 million pre-valuation. Microsoft is planning $300 – $500ish million on a $10 billion evaluation. Go figure who the real sucker is.

Clearly, it seems that Facebook’s hype is somewhere and its facts are somewhere else. They’ve been thinking too ahead of time and a bit too much of themselves, and the hype that’s surrounding it is only adding to everything for now.

Put simply: Facebook isn’t worth $10 billion let alone anything bigger — or IPO — that it’s looking out for.

For sure, it’s a super hot product, really well made. It’s also got a great team behind it and a great leader. And yes, the adoption is there, everyone knows about Facebook. Developers love it too. And to top it all, it ain’t doing too badly on the page views and its share of web traffic. But it’s missing a key element that a real business with its level of hype is supposed to have — and must — to get anywhere: a clear-cut revenue model. Money.

If the reported $30 million in profits and $150 million in revenue has truth to it, I’ll admit, it’s not bad. But here’s the thing: Facebook’s adoption rate is about to slow down in a few months and that kind of money doesn’t scale on the IPO level for a company that is supposedly the next GOOG.

The problem: when you’re at GOOG level, you can’t rely on Microsoft’s guaranteed revenues for your annual sales figure. What’s more, you have to keep growing page views and the ad dollars.

Sadly for Facebook, monetizing a ‘social utility’ is much tougher than monetizing search, which has worked out pretty darn well for Google. Targeting by relevancy is out of the question because it’s all about intent and your intent is to see what’s happening in your social life around you. And I can tell you know, when you’re reading through what’s happening in Bob’s life, applying for an internship at CareerBuilder.com is most likely not an intent of yours.

Ultimately, Facebook’s hype-vs-reality question and debate is all up to its ability to make money. Making money involves a really smart monetization scheme. And a really smart monetization scheme, in Facebook’s case, could be really smart targeted advertising (read: not relevant, targeted). Why not? They know everything about you and your social life (sorry, I meant social graph).

Whatever the case, I think one thing that’s be a must for it — if they go this route — will be some kind of an open and long-tail inventory, not unlike Google’s, but anything to get them away from Microsoft’s current crappy five-rich-advertisers club. If they can repeat what they did with Facebook Platform to developers for advertisers, namely the smaller/medium sized businesses, I think it’s going to be something.

Until then, one thing’s for sure: Facebook’s valuation is nothing but hype. The next couple of years are going to be really interesting to watch this unfold. For now, I’ll leave Mark Zuckerberg with Kara’s advice: ‘take the dumb money and run as fast as your flip-flops will carry you.’ And my two cents: don’t lose the flip-flops and run bare-feet anyway, because you just might regret it. :)


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