Showing posts with label Facebook. Show all posts
Showing posts with label Facebook. Show all posts

Monday, September 03, 2012

FACEBOOK: FUTURE QUESTIONED

While the world debates over when Facebook will go public and what its worth would be, Mark Zuckerberg is worried about a decision he has to make – sell-off his 24% stake & bid adieu to Facebook or alter the very business model by diversifying. What should he choose? by Steven P. Warner

So will Facebook become a meteoric fad? Louis says it already is: “Facebook is already a fad. I don’t think it is going to grow out of that. It lacks credibility.” Pessimism apart, the giant’s credit notes being reduced to scribbled sheets appear quite a possibility. And the mass market has proven to be a fickle group; Facebook cannot overlook this historical truth. Speaking to B&E from San Mateo in California, Jeremiah Owyang, Partner, Altimeter Group says, “Facebook is at risk. Other social networks became complacent, got sold to larger media entities, or failed to invigorate their talent tools and suffered as a result.”

Debate is also on that Facebook could become larger than Google. Speaking to B&E from Chicago, Andrew Lipsman, Senior Director of research agency comScore Inc., sounds optimistic. He says, “Facebook can eventually becoming the largest web property in the world (currently it is #4). But this would still take a few years. To get there, it would need to get traction in some of the larger Internet markets where it still has a limited presence, such as Japan, S. Korea, Russia & Brazil.” But Sturm doubts it. Says he, “It is unlikely that Facebook will become bigger than Google. It is riding the wave of popular infatuation. Things can go wrong for Facebook. What if some hacker found a way to compromise its security? There are many possibilities!” Facebook also has to move away from relying only on online ads. While Facebook is growing, so is Google. Not content with being the dominant search engine, Google continues to attempt to mean more things to more people. Its latest innovation is Google RealTime. In short, cautious, but deliberate diversification will benefit Facebook, as Owyang of Altimeter says, “Facebook will need two strategies to maintain leadership: Innovate & integrate features at all consumer touchpoints, so it’s no longer just a destination strategy.” This typically implies that Facebook has to look beyond social-networking communities.

The opportunities? First comes “analytics”. Zuckerberg has to better realise the power of 500 million samples across 100+ countries. Facebook can serve research agencies and surveyors who are looking at demographic, psychological or other types of market researches. There is presently no clause that disallows “grouped data” to be furnished to third-parties. The situation is thus – Facebook has a mine it can monetise. Strangely, it is not doing so.

Facebook dreams of becoming the new-Google. But it isn’t doing what Google did on day #1 – it has no credible search business (except people), which is what primarily made Google worth $150 billion today, and forced Microsoft to risk a $47 billion bid for an outdated Yahoo! Search capability enhances the value of a web property and multiplies the revenue inflow manifold. How? Google crossed the $10 billion revenue mark when it was seven years old. Facebook is already six and hopes to cross the $1 billion mark only by 2010-end. Facebook is also missing out on the places where netizens spend most of their time – the Inbox. Facebook’s mailing system is outdated, looks rigid & clumpy and is almost impossible to organise. Mails give the most important dimensions to online networking. Most know this; some don’t. Does Zuckerberg?



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Tuesday, July 24, 2012

Stratagem-INTERNATIONAL-TECHNOLOGY: BUBBLE IN THE MAKING

Question is: Will such a situation occur? The ecosystem does lack antibodies. Since early last year, investment banks have shifted gears, and money to grab a pie of the Internet machines, has started flowing-in thick. Just six months after paying a record $550 million to settle a Federal fraud case, in January 2011, Goldman Sachs (along with Russia’s Digital Sky Technologies) invested $450 million in Facebook (with a promise to help raise another $1.5 billion), valuing the social networking site at $50 billion (valued more than the world’s second largest automaker GM – $47.91 billion – and 200% more than the world’s largest aircraft manufacturer Airbus-EADS – $16.96 billion). Groupon, a deal-of-the-day website, turned down a $6 billion takeover bid by Google in January 2011, and is now planning an IPO, which will make it a $25 billion entity. Surprisingly, Twitter, which still hasn’t broken-even (it officially launched its first revenue model in March 2010, called “Promoted tweets” revenue model, four years after its launch), carries a price tag of $10 billion. Over the last five months, other VCs have also raised huge sums to invest in tech start-ups. Accel Partners, is about to raise $2 billion for investments in Facebook’s China and US operations. Others like Bessemer Venture Partners, Greylock Partners, Sequoia Capital, Andreessen Horowitz & Kleiner Perkins Caufield & Byers have collectively raised more than $4.5 billion since September 2010.

Speaking to B&E from New York, Greg Blonder, Former Chief Technical Advisor at AT&T, while explaining the rationale behind these deals says, “These valuations are too high for any single company. They are preferring PE funding for now because private stock sales retain much of the valuation bump. Furthermore, big banks need a conduit of private sales to feed their large clients who are otherwise dissatisfied with conventional investments. It’s simple economics – supply, demand and greed.” Even Prof. Steve Blank of Haas School of Business, in his 2011 paper titled, New rules for the new bubble, discusses the danger of over-valuations in the Internet market. He writes, “The signs of a new bubble have been appearing over the last year. It is being driven by market forces on a scale never seen before in the history of commerce.” There is some reassuring science too. One like this – in 1999, 308 tech companies came out with IPOs, while 2010 saw only 20 such instances. Accepted. But the game has just got riskier. Can you imagine someone valuing a cash-guzzling Twitter for $10 billion a decade back? According to Dealogic, a total of 5,100 inorganic deals were executed in this sphere last year – the highest since 2000. Moreover, the average deal size at $46 million is also higher than the average deal size in 2000 ($40 million). An analysis of the S&P 500 composite index (which include 75 tech stocks) based on Tobin-q for a cyclically adjusted P/E values also reveals that stocks are today overvalued by 40%. As of April 14, 2011, the P/E ratio of the technology sector stood at 17.61 – lower than the current P/E ratio estimates of Facebook (50) and Twitter (28).

Now that we know that there are chances of a bubble, what is it that can be done to control it? The key lies in a Fed intervention, which can control hyper sentiments in the market by sharply increasing Fed funds rate. But such a move might lead to all PE firms, VCs and angel investors from turning their head away from funding ideas germinating in university classrooms and company boardrooms. Some even debate that using a economy-wide hosepipe to control a growing fire in a particular sector isn’t very smart. Actually, it is, for this fire, though largely unseen by most now, threatens the world. Agreed. Every start-up is not Facebook. But investors around the world do not deserve bankruptcy because of one Harvard dorm-trick!



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