This page has been archived and commenting is disabled.
Michael Whalen: Is Facebook a Wasting Asset?
Over the past several years, I have been discussing the tech sector with my brother Michael Whalen who is currently the Head of Digital Rights Administration for TuneSat,LLC. TuneSat’s audio fingerprint technology monitors hundreds of TV channels in 14 countries and crawls millions of websites. Michael is a professor at NYU and The City College of NY, a two-time Emmy® Award-Winning composer as well as an internationally-known recording artist. Last month on Zero Hedge, we spoke about the outlook for Apple Inc (AAPL). This month we return to one of our favorite topics, namely Facebook (FB). By way of background, you can read the February 2012 discussion with Michael about FB onZero Hedge, “Facebook Jumps the Shark.” Also, see my FB comment in Washington & Wall Street, “At Facebook it’s about Quality vs. Quantity.” -- Chris
RCW: So Michael, we have spoken in the past about some of the business model issues at FB. They just went through an especially ugly annual shareholder meeting, inspiring me to write a comment on Breitbart.com from a valuation perspective. I'd like you to dig a little deeper and revisit the business model of FB in light of the results of the past year. Observers talk about how FB is changing the world but is this really a business or simply a web site that is still largely free?
MW: If I was an investor in FB - - I would be furious too. Mark Zuckerberg cashed in a chunk of his stock, he got married and most importantly - he has stopped listening. How do I know that? Look at what they've done since their IPO. They've put in a "Timeline" and some minor fixes to their basic interface. That's all.
RCW: That is a pretty tough indictment. How do you measure Zuckerberg’s failure?
MW: Their revenue is flat. Flat? How is it possible to NOT monetize 200 million eyeballs? When we talked about FB 18 months ago - - I was hoping that Wall Street and the responsibility of actually BEING A CEO would have to kick-in. Right? So many potential opportunities are passing him by. The young audience that set fire to FB prior to the IPO have abandoned it. My teenage children joke that FB is the "cool" platform for 40-somethings and their grandparents (aged 60+). In marketing terms, this is FB's death sentence. When the audience that validated the platform turns away from it - - it's long past time for the investors to move on. So, no, unless someone takes control of this ship FAST - - the potential markets and opportunities of 24 months ago will be a distant memory.
RCW: Talk a little about the “how” of monetizing the audience at FB. What has Zuckerberg done right or wrong in terms of building FB’s revenue model? The company trades at 500x earnings, so we can understand why investors are a little antsy.
MW: Zuckerberg has created an easy to use platform for sharing updates, pictures and videos. There is a simple interface for loading games and some basic "APPs". Their mobile product works well. That's what they've done "right." The rest is a long list of missed opportunities and ridiculous myopic decisions.
RCW: Can you be more specific?
MW: I think the BIG problem is that Mark thinks that FB is AAPL. FB doesn't have the R&D department to create the software, APPs or platforms that their customers want. My question would be "why try" to go up against tens of thousands of APP companies developing technology that can be purchased inexpensively? FB bought Instagram for $1 billion. That wasn’t cheap nor is there a clear picture of the ROI from integrating this APP into FB. What’s needed is a whole NEW vision of what this website can be. Mark Zuckerberg has created a shopping mall in FB that has been universally accepted by a huge percentage of people - - but he seems loathe to populate it. Why not "lease" the page space...? I don't mean for "Farmville" and all the insipid games... What about NetFlix (NFLX)? Why can’t FB be a container for other people's content? Frankly, the platform FB has made for their APPs and content looks cheap. If I were a content provider, I would not want my valuable material framed that way. Why not sell page space to Spotify or iTunes? The key component here is VALUE and convenience for the customer. During demos and shareholder meetings, Zuckerberg says he's "committed to the user experience." There's just not that much real evidence of it so far in the FB offering.
RCW: So is your criticism that FB is talking about "the experience," but basically mimicking other existing platforms? If Zuckerberg took your advice, how do you think Wall Street and the investor base would react? Has too much time gone by since the FB IPO to "think different" to borrow the AAPL metaphor.
MW: Yes, they are mimicking. But I also think Zuckerberg and the FB management team are playing it safe. Ironically, they are control freaks. This is antithetical to the notion of "social networks" that the company would be so protective of their spaces. Look at how Google (GOOG) has gotten their butts kicked on "Google +." Some of these huge Internet/media companies are living inside an ivory tower and they’re trying to be all things to all people. As you learn in any business school, this is a losing proposition. Pick your business and excel at it.
RCW: Yeah, I killed Google + a while back. And of course never been on FB. Twitter is the choice. To your point, humans tend to repeat what works. The biggest challenge any CEO faces is to be critical of the current accepted business strategy and to seek out opposing opinions. Has FB failed at this task?
MW: It really comes down to one notion: "open source". Look at Tumblr, it's a "open source" social network that thrives on repurposing content from other places. I think Yahoo (YHOO) overpaid for them - - however, Tumblr is successful for being a content hub and a convenience. FB could learn a lot from their model. The next step for Tumblr will be creating content bridges between accounts where sharing content legally is encouraged or even requested by the rights holders (even edited or "tweaked" content). So, to answer your question, it's never "too late" to innovate. Actually, this would be a great time for FB to do a huge pivot and surprise people.
RCW: OK, so besides turning FB into a high-utility shopping mall, what else would you do if Mark Zuckerberg made you CEO of FB tomorrow?
MW: I'm the new CEO of FB! (laughs) I would look at two areas: I would go after the business audience of Linkedin (LNKD) and GoToMeeting by making FB the FREE communications hub for small business using advanced video chat, VOIP and file sharing. Because the FB platform is already ubiquitous, my job is to make the barrier to entry for these companies as close to zero as possible. This would be a fun marketing challenge.
RCW: What else?
MW: The second area I would get into is to enter into carriage license deals with television networks and production companies to host their current and NEW content versus going to YouTube, Vimeo, NFLX or having the networks do it themselves. As the CEO of FB, I have an invaluable currency - which is called "eyeballs." If I can deliver viewers to other people's content - - what is that worth? I don't have to make the content (ie: NFLX) I can just be there when it comes time to monetize it. If you are providing value, monetization works if you are willing to be transparent to the customer what they need to do, what the company gets and that they are valuable. You can’t grow anything by either being too careful or too arrogant. FB is still enormously valuable if the company is willing to sit in the seat of their customers and ask the right questions. The problem is that the clock is ticking for them and their untapped potential is spilling out all over the floor. It would be tragic if FB became the next MySpace.
RCW: Thanks Michael. Let us know if the FB board calls.
»
- advertisements -
Facebook needs to include porn
The Fleecebook IPO was the end game for the ponzi scheme.
facebook and other content providers should revenue share with the telcos
no facebook, less internent cell phone usage for telcos and less revenue.
simplez!
I find it difficult to have any sympathy for owners of Facebook shares. Zuckerberg himself has been rather clear about the aim for his creation when he states: "Facebook was not originally created to be a company. It was built to accomplish a social mission -- to make the world more open and connected."
No doubt he and Bono are happy to pocket a few hundred million now and again, but it it clear to me that Mr Z has more aims that just money. He wants influence and political power as well and will use the company to get it.
Shareholders have no one to blame except themselves for falling into the Wall Street trap.
As always: Caveat Emptor!
When you have one billion, maybe the second one (or tenth) isn't so important .... so they look for another challenge and try to save the world
Maybe most of those eyeballs are useless.
http://static.neatorama.com/images/2006-02/howell-sheep-eyes.jpg
Farcebook.
It's whats for dinner.
If you analysts would spend 1/1000th the time you spend analyzing the bullshit market, analyzing actual people and how they think, maybe you'd realize you can't ever monetize internet sites like Facebook.
All I ever hear is "potential". How can you not monetize 200 million people? Simple, 200 million people are not willing to pay what is required to value Facebook halfway to profitability.
Facebook paid $1 billion for a company with no revenue and no plan for any future revenue.
If you can't see the absolute insanity in that, well you are lost to functional society. Which is the problem. Wall Street and the apparatus that supports it, has destroyed the functional and productive society and replaced it with this bullshit hollow mirage.
Facebook is a tool, one easily replaced if its usefulness is suspect.
If Home Depot decided it was time to monetize hammers and raised the price 500x, I think everyone would switch to screwdrivers. In fact many carpenters might just go pick up a rock and tie it to a stick.
For fifteen years Wall Street has been trying to monetize the web. Probably because it is the easiest scam to run. When the product requires very little human labor to produce, there is less at stake with failure.
Let's also not forget that the real product being sold are shares with the goal of a greater fool always being there to pay more for them.
What a brilliant business strategy.
"Facebook paid $1 billion for a company with no revenue and no plan for any future revenue.
If you can't see the absolute insanity in that, well you are lost to functional society. Which is the problem. Wall Street and the apparatus that supports it, has destroyed the functional and productive society and replaced it with this bullshit hollow mirage."
I would only add that gov't plaued a major role in that as well. "Wall Street" has privatised the profits and socialised the losses with the help of the lawmakers lawbreakers in Washington DC.
Fuck Bernanke? Well, yes but FUCK GREENSPAN for creating the fucking mess.
Facebook will be historic
Never before have so many, given so much, to so few, for so little.
Zuckerberg is the King of Nothing, yet a billionaire.
The first trade was what? $42? I watched every single trade that day and the last thirty minutes were comical. MS was not going to let it trade below the offering and had an infinite number of shares to buy at $38. It was disgusting. Free markets.
So the summary is FB Insiders created a website that never had any viable business model, yet was priced as it would, and we shall see if it will. I bet it won't.
Security and privacy will get so disconcerting that FB accounts will start closing - a trickle, then a torrent.
$42. Suckah!! Soon to be $4.20
Is Facebook even an asset?
Not in my ledger...it's just a waste, period.
FB achieved its business model the day it went public. There is no "more" there. It might get some "more" but it ain't going to come from the hoodie....
Every time I look at FaceBook I cringe. Everything is designed to trick you into making inadvertent errors and leaking your privacy.
That baby lie design motif is also so AOL.
And the reason I use Flickr. Facebook is a horrendous platform for serious image sharing and storage.
The suckers holding the stock deserve what they get.
Maybe because it's really just a data mining platform? Ever look at the venture capital behind it. Lots of CIA conduits.
FLickr was / is designed to do exactly what it does. I think it needs some changes but it's solid. Faceplant does what it was designed to do as well. The people on faceplant ARE the product. To be sold to the highest bidder. Or in light of recent news said product gets handed over to BIg Brother on demand with their "secret warrants".
Facebook will end up in the trash bin of history and become a joke a la friendster and napster.
FB is a horrendous platform, period. It is one of the most unintuitive interfaces I've ever used. Functions are buried and won't do what you want. It looks like ass. That f'n "wall" that's the centerpiece of the whole thing is obnoxious. Search on "disable wall" and it seems like I'm not the only one who thinks that. The ad model is pernicious - the whole "like" and "poke" gimicks sound like they were designed for the Barney crowd. And that's not even getting into the data mining portion of the whole thing.
I think the thing that irks me the most though is that most online news outlets force you to comment through FB to comment on their stories now. Hmmmm. Wonder why that is?
Typically I don't give a rats ass what the Whalen boyz say because they are most frequently ego pieces.
IMO, FB was turned over to the government long ago and the only goal Zuckerberg had was to deliver it to IPO at the highest price possible. Now he is out back strangling chickens and laughing at the stupid people who got taken in by an NSA funded spy machine to which people contribute to their own dirt.
pretty much. "they're all tools." and somewhere out there is a Government that loves us! http://www.youtube.com/watch?v=IG7ezd9k6FA
You are correct with your focus on sales and revenue. However, your focus on advertising is silly. Yea, if you are Facebook, fine, go sell advertising. However, if you are a startup website, blog, etc., well I am sorry, advertising is not going to bring in the bacon.
I am currently writing a product that will generate monthly subscription revenue. I also publish an online industry website trying to sell advertising... my goodness the effort goes into selling a $150 three month contract is just amazing and frankly, not worth it.
Advertising and government spy revenue. You think that the government is not still pumping up profits at FB, GOOG, MSFT, YHOO and others through the purchase of user information? FB is getting its 20 coin.
"Don't do evil" ... how ironic and sad.
ICONIC NOT IRONIC! IT'S ALL ABOUT THE BRAND! GET OUT THERE YOUNG MAN! THE WORLD AWAITS!
"Waisting asset?"
Waisting time for most, surely.
This is a comment I posted on Business Insider last week. It speaks to a common problem of revenue in dotcoms.
So interesting to read the comments here.
Great post Jim. I have been in media over 30 years, 15 of which in internet ad sales. I have heard all of these arguments over and over hundreds of times. You all need to understand a few things. Indulge me.
1) You are free to create/do anything you want. But no one has to pay you for it and no one has to invest in you. Once you take other peoples' money, they invest with an expectation of a return. They do not do it for the greater good.
2) The return most investors have earned from the web has been through sales of the company, not through retained earnings, dividends, cash flow etc. If a company is being sold to another company or the public markets and it has no earnings (even no revenue!), who buys such a company and for what purpose. a) Greater fools, b)other VCs in a kieretzu READ:Ponzi, c)competitors looking for traffic, or d)aquihires. In all cases, these are not valid sustainable endeavors. These are not real companies. Sorry but it is true. Maybe cool code. Maybe fun. Maybe socially redeeming, but not a way to put food on the table.
3) The way you put food on the table and shoes on your kids is to sell a useful product for real money. Digital news, sports, entertainment, data, even connectivity to some extent, supported by advertising is a valid business.
4) For most successful web companies it is their ONLY BUSINESS. Yet as Jim points out, most actually harbor the same contempt for advertising that I read in these comments and that I personally experienced time and again over 15 years in the business. Many spend their days " looking for alternate revenue streams", "looking for sustainable revenues", "diversifying", "focusing on the user".......everything except making money. These are all excuses and denial.
5) Why? Why does this mantra of distaste permeate the industry? It has a cousin too. Dislike of sales... the process that brings in the money and is all a part of the marketing family. The entire tech industry in saturated with this. Except for a few. And those few are the leaders and most successful companies. Oracle, IBM, Xerox, Salesforce, (Siebel in it's day) these are not ad driven companies but they ARE and always have been SALES driven companies. They are all also innovative great product companies. Product and sales are not mutually exclusive. I have come to believe that the root problem is two fold. a) A focus on sales means admitting that your product does not sell itself. A hard pill to swallow for product-proud techies. b) A focus on sales means that there is another competing skill, from the left brain, that is as important as writing code but completely misunderstood. c) A focus on sales means your product has to survive the test of the marketplace and the company must take on the risk, yes risk, of revenue.
6) Yup revenue risk. Believe it or not I once had a meeting with a financial officer of a major dotcom who suggested that we might cancel million $ contracts with large clients because he was afraid they might not pay. Credit risk is a concern but that was not the case here. I have seen this time and again. Fear of revenue risk. Your company has to actually sell something, deliver it on time and to the client's satisfaction or face risk of failure. Is your dotcom afraid of revenue? Serious question.
7) You know in the early days of television, they used to stop the show. a show host would get in front of a live camera and demonstrate/sell a sponsor's product in prime time in front of millions of people. Now that's risk folks. No, banner ads are not intrusive. The users don't don't care. IF they are good ads, placed right, they have great value and have no negative impact on users. That's an excuse and it's all a part of the mantra of dislike of sales. You need to get over it.
So now we get to the really deep stuff. Fear of failure. Fear of risk. A public market that will bail you out and a VC clamoring for you to focus on the user and your exit strategy.
I have always preferred to build sustainable businesses, providing valuable services, advertising, to willing buyers rather than selling overvalued hype to unsuspecting public markets. Advertising is not the enemy Who is selling who here? Think about it.
Read more: http://www.businessinsider.com/the-tech-worlds-hostility-to-advertising-is-a-sign-of-its-immaturity-and-it-needs-to-end-2013-6#ixzz2WZd9rBUy
You nailed it! +1000
When it becomes a real business, it isn't fun and games anymore. Techies generally don't want to go there - and don't.
If Snowdon can pull in 200K spying on us Facebook should be able to pull in enough NSA revenue to make a good profit. I hope Obama is paying them well otherwise he's not half the fascist that I think he is.
Your remark about 'NSA revenue to make a good profit' really hits home -
It may be many big internet giant portals and venues really don't make money, but are basically funded by governments, and principally the government of the USA - CIA Google Inc, CIA - Mossad Wikipedia, CIA Facebook
Who is reading online ads in a world now reading web pages on smartphones ?
The CIA's Google Inc is certainly supported and if necessary financially subsidised by the US goverment, with back-door money, like its initial (quite well documented) CIA seed money
Ditto for the CIA - Mossad Wikipedia, also funded by the US government, with the trick of being 90 % 'neutral' on general stuff so CIA and Mossad can insert gigantic lies and hoaxes in the other 10 %
And then we have the various government-supported news companies, like CNN and BBC
Thank God for RT - Russia Today
Maybe the best we can hope for, is future internet browsing, e-mail, and news supported by a few rebellious and somewhat honest governments ... which is much more Russia than the USA right now
Snowden is dumb. He doesnt realize that the conspiracy isnt to spy on Americans, but to create a massive, unnecessary bureacracy to employ fucking nerds like himself. I bet they dont even arrest him; the story will just fade....
JFC - TPTB aren't tasking themselves with creating overpaid jobs for a new nered-middle class. "The ultimate expression of power is control" - or so a new advertisment I recently saw extolled. There is your blueprint. Same as it ever was. Sure, if the powerbrokers grift the hell out things while their at it - but that's mainly at the top, and it's far from their defining purpose.
.
Bots ainT got eyeballs!
Most Bots donT have money either.