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

by llambda • 14 years ago

51 43 14 years ago

tokenadult• 14 years ago

If you read to the end of this interesting article, you see this comment on pg of YC (and HN):

"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.

InclinedPlane4• 14 years ago

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.

citricsquid• 14 years ago

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.

Alex39172• 14 years ago

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.

mkramlich2• 14 years ago

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.

sjg007• 14 years ago

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.

drieddust• 14 years ago

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.

cft• 14 years ago

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.

firefoxman1• 14 years ago

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.

mrtron• 14 years ago

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.

joe_the_user• 14 years ago

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.

dm8• 14 years ago

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!

ahi2• 14 years ago

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.

Alex39172• 14 years ago

"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.

spaghetti• 14 years ago

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.

cletus• 14 years ago

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.

andrewfelix• 14 years ago

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...

mtrimpe• 14 years ago

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.

ChuckMcM2• 14 years ago

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!"

meric2• 14 years ago

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?

helmut_hed• 14 years ago

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.

thisismyname• 14 years ago

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).

notJim• 14 years ago

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.

lukifer• 14 years ago

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.

damian2000• 14 years ago

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

As Social Sites’ Shares Fall, Some Hear Echo of 2000

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