Saturday, July 14, 2007

Facebook Phenomenon

So now that I live in San Francisco and work in Silicon Valley, I cannot help but get caught up in the drama of the technology of Web 2.0 world. Recently, I read a rumor that Microsoft may be in the market for Facebook at the cost of $6 billion dollars. Are you kidding me? Word on the street is that the executive team at Facebook has in the past turned down offers as high as $1 billion dollars. Are they insane?! Take the money! Screw the IPO!

Yes, everyone I know uses Facebook and yes, I frequent it myself and maintain my own profile. However, let us think about this rationally. It doesn't make the kind of money to justify $1 billion dollars or more. I think too many people have bought into the idea that millions of eyes will inevitably lead to millions of dollars of revenue. The more tech savvy will take it one step further and suggest that millions of eyes will lead to millions of dollars "once the problem of monetization is solved!" Once the problem of monetization is solved? Seriously? I have had real conversations with really smart people who buy into this line of reasoning! In a for-profit business model, isn't the fundamental problem making money? How are you going to learn how to make money and evolve your business accordingly if you spend the bulk of your growth cycle on capturing and articulating your audience?

This is not the same situation as Google. Google innovated their way towards a solution to generating revenue. They did so almost immediately after Google started getting remotely popular. Google anticipated a need to actually make money well before it became time to turn public. So far, what have we heard from Facebook? Sure, maybe peoples' interests and the interests of their friends may yield decent targeted advertising. However, people are searching for everything on Google. People are searching for people on Facebook. There's a BIG difference.

Facebook also recently built and deployed a glorified widget platform. In my opinion, it is masquerading as the innovation necessary to bring Facebook to the level of uber-profitability. I do not think it has the potential to turn lead to gold as Mark Zuckerberg's keynote at f8 would lead us to believe. The concept of the mash-up has been around for a while and I don't think anyone has really made a killing as the middleman in such a model (read Widgets Suck for a decent opinion as to why).

My prediction is that Facebook is going to hold out for an IPO. The IPO is going to blast off initially because far too many non-technical investors will hype it up without fully understanding it. Then, with all of the financial documentation that will become available, smart people will start to recognize that there is no real money there to justify a high market capitalization. The stock will tumble and the company will be worth less than anything offered before it went public.

Maybe I'm just a pessimist, but if I were 23 and had built a website that was receiving offers of $6 billion after only 3 years of existence, I would take the money and RUN! Seriously, you made it to the big leagues. Cash out, keep one eye on your creation, and if glory is what you want, start the process all over again. Remember, Steve Jobs is only Steve Jobs because he built Apple from the bottom up twice.

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