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May 18, 2012

On the Facebook IPO

The following comes from two emails I sent the cob loggers last September. I thought I was being dumb about Facebook's business model, so I didn't turn them into a post then. But now people are questioning the value of the stock offering.

Facebook is going to have an IPO eventually worth, I've heard, $100 billion dollars. Why? Why is it valuable? Because they can target advertising to people? How is that ability worth that kind of money?

First, advertisers already have sophisticated ways to learn who their buyers are. Granted, their surveys aren't as detailed, but they move products to the right people. Especially because of the following...

Second, advertising is done en masse. Very little of it is targeted to individuals, and most of that would have to be via computer. I suspect most people stomp on that kind of advertising with with adware and spamware.

Third, this "Facebook is so very valuable" religion that is centered on information is starting to remind me of the hype surrounding chaos theory and complexity. For several years, everybody agreed chaos theory was a Totally Awesome Thing, but no one actually knew what it was or what it was good for. Its value wasn't intrinsic; it was based on social pressure. Everyone had faith we would soon find these awesome uses. And anyone who questioned the religion, say, at a complexity seminar was treated as if they had farted in an elevator. Questions like, "What can be done with this?" And "Does anyone have any empirical data that shows something complexity theory can prove?"

So the reputed value of Facebook has the feel of another one of those religiously-held social beliefs. The reality is, it's just people chatting on the internet.

Why is knowing what toothpaste individuals prefer so valuable? Don't we know what toothpaste people generally want already? If we need more detailed information, don't we already have ways of finding out? You know, like marketing companies, surveys, and actual sales data?


And regarding the future of Facebook.

Also, people hate being shouted at with ads. Facebook is going to have to find something they want without shouting at them. For example, you go to Amazon to buy goods. You don't go to Facebook to buy anything. Ads are going to be ignored or treated with scorn there.

I think Facebook is going to have to find a way to do something else, like supplant the telecoms or buy retailing dotcoms. Whatever it is, it's going to have a completely different flavor, so to speak. They'll have to offer something. Because right now, the business plan appears to be:

1. collect information on people
2. ???
3. profit!

Collecting info on people and spying on their photos can't be worth that much. Something, yes, but not Amazon or Google money.

Maybe I'm showing a lack of vision.

The thing I fear is that they will feel the need to push toward further privacy invasion. Because where can they use their targeted information? At the news kiosk or, say, the quick stop. One of their computers recognizes you and asks you in a very charming way if it's time to buy some more K-Y Jelly. Or, "Hey, Monty! Last week you bought milk. Probably time to get some more! Have a nice day!" Or, "Your girlfriend is in Dallas at Fridays on Mockingbird Lane. Do you want to send her a drink!? How about some roses!?" (You thought your girlfriend was on a business trip to Des Moines.) Can there be anything more annoying than a friendly machine that recognizes you?

Anyway, point being, with all that information they've collected, they are going to be highly motivated to use it somehow, probably invasively. And they'll use a lot of that money to grease Congress to keep things loose so they can get what they want.

Anybody got any ideas? I still think that unless Facebook buys into a way to retail to consumers, the value will drop over time.

Follow me on Twitter.

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posted by rdbrewer at 12:44 PM

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