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15May/12Off

Facebook’s race to the bottom

TechOps Guy: Nate

I'm as excited as everyone else about Facebook's IPO - hopefully it will mark the passing of an era, and people can move on to talk about something else.

For me it started back in 2006 when I went to work for my first social media startup, a company that very quickly seemed to lose it's way and just wanted to try to capitalize on Facebook some how. Myself I did not(and still don't) care about social media, one of the nice things about being on the operations/IT/internet side of the company is it doesn't really matter what the company's vision is or what they do, my job stays pretty much the same. Optimize things, monitor things, make things faster etc. All of those sorts of tasks improve the user experience no matter what and I don't need to get involved in the innards of company strategy or whatever. I mistakenly joined another social media startup a few years later and that place was just a disaster any way you slice it. No more social media companies for me! Tired of the "I wanna be facebook too!" crowd.

Anyways, back on topic. The forthcoming Facebook IPO. The most anticipated IPO in the past decade I believe anyways. Obviously tons of hype around it but I learned a couple interesting things, yesterday I think, that made me chuckle. This information comes from analysts on CNBC - I don't care enough about Facebook to research the IPO myself it's a waste of time.

Facebook has a big problem, and the problem is mobile. There hasn't been any companies that have been able to monetize mobile(weird thinking I worked at a mobile payments company going back to 2003 that was later acquired by AMDOCS which is a huge billing provider for the carriers) in the same way that companies have been able to monetize the traditional PC-based web browsing platform with advertising. There have been companies like Apple that makes tons of money off their mobile stuff but that's a different and somewhat unique model. The point is advertising. Whether it's Google, or Pandora, Facebook, and I'm confident Twitter is in the same boat. Nobody is making profits on mobile advertising - despite all the hype and efforts. I guess the screen is too small.

So expanding on that a bit, this analyst said yesterday that outside of the U.S. and parts of Europe the bulk of the populations using Facebook use it almost exclusively on mobile - so there's no real revenue for Facebook from them at this time.

Add to that apparently Facebook has written China off as a growth market for some specific reason(don't recall what). Which seems contrary to the recent trend where companies are falling head over heels to try to get into China, giving up their intellectual property to the Chinese government(why..why?!) to get into that market.

So that leaves the U.S. and a few other developed markets that are still, for the most part, using their computers to interact with Facebook.

So Facebook is in a race - to be the first company to monetize mobile before their lucrative subscriber base that they have in these few developed markets shifts away from the easy-to-advertise-on computer platform.

Not only that but there's another challenge that faces them as well. Employee retention. Myself of course would never work for Facebook, I've talked to several people that have interviewed there, and a couple that have worked there and I've never really heard anything positive come out of anyone about the company.

Basically it seems like the only thing holding it together is the impending IPO. In fact at one point I believe it was reported that Zuckerberg delayed the IPO in order to get employees to re-focus on the company and software and not get side tracked by the IPO.

So why IPO now? One big reason seems to be taxes, of all things. With many tax rates currently scheduled to go up on Jan 1, 2012 - Facebook wants to IPO now, with the employee lock up preventing anyone from selling shares for six months - that gets you pretty close to the New Year, and the potential new taxes.

The IPO is also expected to trigger a housing boom in and around Palo Alto, CA. I remember seeing a report about a year ago that mentioned many people in the area wanted to sell their houses but were holding off for the IPO - as a result the housing market(at least at the time, not sure what the state is now) was very tight with only a few dozen properties on the market out of tens of thousands.

There was even a California politician or two earlier in the year that said the state's finances weren't in as bad of shape as some people were making out because they weren't taking into account the effect of the Facebook IPO. Of course recently it was announced that things were in fact, much worse than some had previously communicated.

I'm not saying the hype won't drive the stock really high on opening day - wouldn't surprise me if it went to $90 or $100 or more. It seems like the IPO road show that Facebook took, in their case it felt like a formality more than anything else. I just saw someone mention that in Asia the IPO is 25X oversubscribed.

One stock person I saw recently mentioned her company has received more requests about the Facebook IPO than any other IPO in the past 20 years.

Maybe they can pull mobile off before it's too late, I'm not holding my breath though.

I really didn't participate in the original dot com bubble, I worked at a dot com for about 3 months in the summer of 2000 but that was about it. So this comparison may not be accurate but the hype around this IPO really reminds me of that time, I'm not sure how many of the original dot com companies you would have to combine to reach a market cap of $100B,  hopefully it's 100 at least. But it's sort of like a mini dot com bubble all contained within one company. With so many other wanna be hopefuls in the wings not able to get any momentum to capitalize on it beyond their initial VC investments. The two social media companies I worked for combined got around  I want to say $90M in funding alone.

Another point along these lines, is the esteemed CEO of Facebook seems to be on a social mission and cares more about the mission than the money. That reminds me so much of the dot com days, it's just another way of saying we want even more traffic, more web site hits! Sure it's easy to not care much about the money now because people have bought the hype hook line and sinker and are just throwing money at it. Obviously it won't last though :)

Myself of course, will not buy any Facebook stock - or any other stock. I'm not an investor, or trader or whatever.

Tagged as: 2 Comments
20May/11Off

LinkedIn IPO could ruin tech sector?

TechOps Guy: Nate

I've been seeing an increasing number of people (some of whom I at least know of and respect) saying how bad the LinkedIn IPO was yesterday.

A recent one I just came across is from John Dvorak (damn I miss Cranky Geeks), who has a column on the Wall Street Journal site saying how the LinkedIn IPO could ruin the tech sector.

Myself I don't agree that the IPO itself could ruin the tech sector, I think it's just another part of the frenzy in social media, LinkedIn is of course seen as a gateway into one of the leaders in the space and there has been so much hype being built up over the years. It's just a sign as to how rabid some of these people are(the fact that there is a whole second market for this kind of stuff that has opened up is far more concerning to me than the IPO). Whether or not they IPO'd wouldn't of changed that fact.

I just think back to my days at Jobster(closed up shop about two years ago) when they were running rampant on the social media stuff, I couldn't believe my eyes or ears. I knew the days were numbered when the management of the company wouldn't let us remove bad email addresses from our databases (the bad email addresses were causing us to get blacklisted, hampering abilities to do the amount of email traffic to users that we were doing).

We couldn't delete them because it would hurt our user count. I mean oh my god, are you kidding me? These users are not there anymore! Maybe they never were there! They are actually impacting other users by having their emails bounce! I suppose another approach we could of taken was somehow flag the accounts to not email them, but nobody seemed to come up with that idea at the time.

Here is a good video on some of the hot IPOs in the past year (many from China), and how poorly they have done since they debuted. I tell ya, the more I read and learn about stocks and investing the less interested I become in ever participating in it.

Maybe I'll get lucky and the world will end tomorrow and I won't have to worry about my home grown retirement plan :)

Tagged as: 1 Comment
19May/11Off

$76/subscriber for LinkedIn IPO

TechOps Guy: Nate

Has been kind of interesting to watch this hot IPO unfold on CNBC this morning, they are reporting that the current valuation of $8 billion prices their subscribers at about $76 a piece.

LinkedIn IPO

The LinkedIn CEO was so very careful not to wade into answering what he thinks the valuation of the company should be, trying to not be associated with the dot com bubble.

Now trading at around $88 per share..

I can see the rest of the social media bubble blowers huffing and puffing as fast as they can, not that it will do a whole lot of good for companies that aren't the leaders in the space, something the CEO of LinkedIn hinted at during an interview just after the IPO.

The pop in price certainly exceeded my wildest expectations.

I believe this is another sign that our economic cycle is nearing a peak, before it starts to decline again. Combine this with the uptrend in unemployment and "double dip" in housing along with other factors..

17May/11Off

LinkedIn IPO Pending

TechOps Guy: Nate

Not too much to say here, it seems LinkedIn will IPO in a couple of days with a share price north of $40/share, which to me seems kind of high, normally the IPOs I see have initial offerings at a much lower price, and they just offer more shares at the lower price (usually see mid teens or so).

I've never been a fan of social media (you won't find me on Facebook, Twitter or pretty much anything else), but LinkedIn  is one site I have gotten a ton of value out of.

I remember back when I worked for another social media company wannabe Jobster (long defunct) a few years ago they used to try to get the employees to invite their friends to join the social network, I never participated, there was no reason for anyone to join. I remember thinking to myself, I have more people in my LinkedIn network then Jobster has in it's entire community.

Funny screenshot from my LinkedIn profile from several years ago

 
I'm terrible at keeping in touch with people, and LinkedIn basically acts as an address book for me, I don't get overloaded with spam from their constant updates (I do wish I could turn off receiving twitter messages on linkedin though), don't have to be bothered with people's pictures or whatever, just basic contact information, no fuss, no obnoxious crap that you find on most other social media sites, very clean.
 
 
 
So, best wishes LinkedIn for your IPO, hope it goes well, you provide a good service, to some extent a service that Jobster had hoped to capitalize on several years ago but was never able to.

I won't be buying any of their stock, well, because I don't buy stock. period.

8May/11Off

Social Shopping – weapon against small businesses

TechOps Guy: Nate

I'm not sure if Social Shopping is the right term or not, but what I am referring to is the Groupons of the world as well as those cell phone apps that help you hunt down specific deals at retailers.

I have been thinking about this off and on for quite a while, and it really is a troubling trend for me, what sparked my interest today was this article I saw on slashdot.

My concept around Groupon is kind of interesting in that you get a group of people a discount or special offer of sorts at your business. The businesses offering the discounts expect, in return to get repeat business from many of those consumers. However it seems in reality that is rarely what happens. The business becomes a victim of their own deal, and most of those consumers never return (unless they get another screamin' deal). So the business takes a big hit on the front end, and gets little or nothing in return.

Then there are the businesses that offer something that they cannot hope to possibly fulfill, such as the article about the photographer article above. I saw another news story last year where about a dance studio having similar issues, as well as a house cleaning service. This problem is probably addressable by better educating the business that is posting the offer to the site(s).

The other really troubling shopping trend are those cell phone apps that allow you to do stuff like scan the barcode of the item you want to buy and it will look at other shops in the area to try to find a better price.

On the surface it sounds like something good for the consumer, but in the longer term I believe strongly it will cause significant harm to the small businesses who can afford only so much to offer as loss leaders to bring people into their stores. Again there is some expectation that there will be return business, and I believe in this situation the likelihood of that happening is higher than that of Groupon but not nearly enough to make up for the losses incurred by the good deal they were offering.

I'm not sure what will happen with the group coupon sites, whether it is something like small businesses realize what is happening and stop participating in the sites altogether, or maybe they feel so much pressure from everyone else that they feel compelled to participate for some mutually assured destruction. Or maybe something entirely different.

As for the cell phone apps, it'll be a lot harder to deal with those, it could be that businesses are forced to stop doing loss leaders, or try to impose rules around taking pictures in the store(hard to enforce), I'm not sure.

It seems like a scary time to be a small business in this economy, with everything that is going on in the macro economy, having technology exploit your business even more is quite sad.