Not Worth The Price

This week Facebook is going public.  In the grand tradition of the late-90’s tech bubble, a company that barely has a business plan and doesn’t really have a revenue model that works is going to become a publically-traded company with a valuation of something like 1000 times its earnings.
   What a colossal crock of crap.
   Let me explain myself.  I’ll avoid the finance talk, which is not really my area of expertise anyway, and get into what I see as the reasons Facebook has been successful (-ish) and why it can’t possibly succeed as a public company.
   Why are people on Facebook in the first place?  The company is seen as a model of ‘new tech,’ like so many of their progenitors from twelve years ago.  People are flocking to Facebook, more or less.  A seventh of the world uses Facebook.  Allegedly.  But not so fast.  Assuming that Facebook is actually successful is one mistake (more on that later), but I haven’t seen anyone try to find out why.  Why are people using Facebook?  I think I have some insight.
   Think about the timing.  When did Facebook  start to gain national momentum?  Around 2007.  When did it really expand?  2009.  And what happened from 2007 to 2009?  Lots and lots and lots of people became unemployed, sitting around the house all day with nothing better to do.  Facebook expanded its user base precisely when there was a huge population of jobless people to use it.  It was novel, which is a plus, and it was a time-waster, another plus for people with no idea how to spend ten hours a day more than they were used to having.  It was a grand confluence of circumstance and availability.  If Facebook hadn’t been around for unemployed people to dither with, they would have found something else, possibly rabble-rousing.  The economic downturn was the best thing to happen to Facebook, the company wouldn’t be where it is now without legions of bored people with nothing better to do.  But it can’t last forever, neither the downturn nor Facebook’s ubiquity.
   Facebook use is already slowing, even among die-hard users, and when the economy begins to improve and people go back to work* you’re going to see Facebook user statistics drop dramatically.  And with it their advertising revenue.
  And what about all those users?  Are there really 900 million users?  Of course not.  There may be 900 million distinct logins, but I’m sure many people have more than one login.  Yes, it’s a violation of their terms of use, but how does Facebook know?  If I were a college student – Facebook’s original audience – and my parents were my friends under one account, I would absolutely have a second account, one they didn’t know about, where my frat brothers could post pictures of me puking my guts out at the kegger. Just makes sense, and I’m sure it’s happening all the time.  Plus, there are any number of business or web site accounts too, and multiples there don’t violate the terms of use.  So that 900 million user number is certainly inflated.  Probably egregiously so, since it's only to their benefit to claim to have far more users than they actually do.  And who's going to check it out independently to keep them honest?
   What about Facebook as a revenue-generating company?  Are they really successful?  The numbers seem to say they’re at least modestly successful, but I challenge you to find anyone who’s paid for a Facebook ad who would pay for it again.**  There’s a term in Hollywood for outside investors who have stars in their eyes and really want to be part of the mystique of making movies.  ‘Stupid money.’   These are people who will cut a check to get any piece of crap film made, just so they can see their names on the silver screen before they die.  But once burned, they usually do not come back for a second try at ‘executive producing.’  There’s a lot of stupid money in Facebook ads.  People who are not professionals, promoting projects or businesses that have no chance of succeeding in the marketplace.  Facebook takes their cash, provides some bogus and unverifiable statistics, and then they’re done.  A few of the stupider of the people with stupid money might go back for another round, but not many.  Facebook marketing is a mother that eats her young, there’s no future in it.  Word is getting around, Facebook ads don’t do a thing for your business except suck more of your precious cash away.  General Motors can tell you that.
   The principle that venture capitalists and entrepreneurs ignored back in the late 90’s was that a company has to make something people will pay for, or provide a service people will pay for.  If there’s no money coming in you’re not a company, you’re a charity.  Or you’re a failed company.  Facebook provides no tangible product, and the service it does provide is nothing you can’t do by yourself with a few phone calls.  It’s a pleasant diversion and a way to keep in touch.  That’s it.  It’s not an advertising engine, it’s not a portal to anything else, it’s a 21st Century version of the old BBS message boards.  And it’s not even particularly well done.
   There will be a few people who will make a LOT of money on this IPO.  You and I won’t be one of them.  If you have stupid money and you really, really, really feel like tossing it down a rat hole, then buy some Facebook stock, it’s a lead pipe cinch to devalue precipitously, because Facebook doesn't make anything of value or do anything valuable or provide a service you can't find elsewhere.  You have been warned.

* or, perhaps, IF the economy begins to improve
** NPR story just today