June 05, 2012

The Facebook Massacre

I am mildly surprised that Facebook has dropped so far so fast.

Although I thought the Facebook IPO valuation was a cruel and stupid joke, and I predicted that it would dive, I really didn't think it would happen this quickly or dramatically.

As I write this, the value of Facebook shares has dropped almost 30% in two weeks. At a putative value of $100 billion, that's a loss of $30 billion in value. That's about $2 billion a day. Even I can't blow money that fast.

The frightening thing to owners of Facebook shares has to be that over the next 6 months the "lock-up" period expires. This means that early owners of Facebook --who have been required by law to hold onto their shares -- will be allowed to sell them. A bunch of shareholders may decide it's better to cash out now, and shares could flood the market.

In the next 90 days, 10% of Facebook shares (over 250 million of 'em) will become "unlocked." In the next 6 months, 1.7 billion (with a b) shares will be unlocked.

With demand for Facebook shares already way below expectations, it could get ugly early.

The amazing thing about the Facebook IPO hysteria is that the whole foundation was built on -- as my dear mother used to say -- shit and glue. Facebook's revenue model is dependent on selling advertising space, and there is compelling evidence that paid advertising on Facebook has thus far been uniquely ineffective.

But we live in an age in which the marketing and advertising industries trust unreliable and foolhardy pundits and experts more than we trust facts or the evidence of our own eyes.

For example...
  • Can you recall a single marketing message that has appeared on your smart phone? 
  • Are there any "conversations about brands" going on at your Twitter feed now? Please go there and check.
  • Have you ever seen a normal person use a QR code?
  • When was the last time you watched a YouTube video about a product?
  • What was the last piece of online "content" about a brand you linked to?
And yet, the fables and nonsense being spread regarding all these magical new tools dominate the marketing conversation.

Could it be that the Facebook face plant will serve the purpose of injecting some reality into the fantasy world of advertising and marketing?

Not a freakin' chance.


Doug Bartow // id29 said...

>Can you recall a single marketing message that has appeared on your smart phone? Define 'appeared.' Do you mean a text, or info accessed via email or other social media streams. If the latter, then YES.>Are there any "conversations about brands" going on at your Twitter feed now? Yes, quite a few, and I'm not a branding nerd, just a 'smart consumer.' If I get tired of the direction of the stream, I unsubscribe.>Have you ever seen a normal person use a QR code?I hate them, but I have used them before. I hope they die quickly, but dismissing them outright is naive.>When was the last time you watched a YouTube video about a product?Old Spice, Dollar Shave Club, Starburst's Little Lad, etc... the list goes on. Don't believe me? Look at the # of views on those vids. I've watched more Vimeo vids of products on Kickstarter than I can count.What was the last piece of online "content" about a brand you linked to?Dollar Shave Club, absolutely killed me: http://www.youtube.com/watch?v=ZUG9qYTJMsI. Consumers share things they like on social media. If that thing happens to be a smartly done video advertisement, so be it.

Doug Bartow // id29 said...

...and the paragraph breaks from my comment are magically gone.

Guest said...

Yesterday, Twitter was flooded with talks about videogame brands, for example.

Tore C said...

try using html 
a   after the sentences to force breaks. might work.

Tore C said...


Tore C said...

as the line break code is not visible i try to explain it here:
do shift comma, type br, do shift period, and a

Billy said...

"... that's a loss of $30 billion in IMAGINARY value" would be more accurate. It was a mirage.

Alex said...

I don't believe Facebook's business model is built on advertising. The problem has been that it's got something to do with the wealth of data they have, but they've steadfastly avoided being specific about the commercial value or, more importantly, use of that data. More fool the investors who signed up. Their thought process should have started with "what do you have that will give me a return on my investment". "Our share price will keep rising" is not an adequate answer by any stretch of the imagination. I just hope the pension funds steered clear of this opportunity otherwise it'll take us all down with it.

Greg Satell said...

I think you're a bit off on this one.  You say" Facebook's revenue model is dependent on selling advertising space"That's not really true, at least from the point of view that they expect to get rich by selling banner ads, they don't.  They expect to earn money because they've become an important platform.Some important facts:- They earned over $500 million on virtual goods such as Zynga- Facebook ads are the best way to promote activities on Facebook pages- Facebook brand pages have become almost as important as web pagesSo, given that a companies value is based on a discounted stream of future earnings, their model is really dependent on them figuring out how to monetize marketers activity on the free pages.Admittedly, banners are probably not optimal, but they're experimenting with other ways.  Sponsored stories is one (although I'm not crazy about it) and promoted posts is another (which I think is brilliant, but time will tell).The point is that they have built a platform where consumers in large numbers are willing to opt into marketing messages and that can be forwarded virally through "likes."Google had similar monetization problems in the early days.  The difference is that Facebook only needs to get it right once and it will be multiplied by a billion users.- Greg

Paul Benjou said...

Give me half of the $100 Billion valuation and I'll "experiment" up the waazoo and give you back $49 Billion! 
As for the 900 million"users" only one third of 'em are in the US. 

Greg Satell said...

Just because they aren't in the US doesn't mean they don't have value.

Atomic Tango said...

I agree with your sentiments about Facebook, but you need to conduct some YouTube research before doing your contrary thing. Commercials on YouTube have garnered millions of views. YouTube has effectively been used to promote entertainment media (music, games, movies), ALL the Super Bowl commercials (which enjoy both previews and post-views), politicians (which are "products" more so than ever), even Egyptian cheese (look up the Panda cheese ads). My friends and colleagues share their favorite commercials from YouTube to Facebook on a regular basis. I don't work for YouTube or own shares of Google, but I know for a FACT that millions of people watch product commercials on it. All you have to do is look them up.

Perry Gaskill said...

Not to sound like a pedantic knob or anything, but some of the numbers thrown out in the comments don't seem to be all that accurate:

@Greg Satell - Actually, according to SEC filings, Facebook's business model is based mostly on advertising to the tune of around 82 percent. Last year, FB netted approximately $1 Billion of a $3.9 Billion gross. If Zynga generated $500 million, that would amount to roughly 12 percent of FB's total, which would leave a ballpark of 6 percent for other stuff such as customer data.

@Paul Benjou - There are some interesting Quantcast numbers floating around that indicate FB's user base in the U.S. is around 150 million. What's also interesting is that the number has evidently stayed flat for the past six months.

For what it's worth, if the line-return spacing looks weird in this comment it's because it's being dumped in with opening and closing HTML "p" tags to see if that fixes the paragraphing problem.

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Julien Blanchez said...

30% of what i buy online, i have found through adwords ads... Online works. When done right.

Luis Garcia said...

I agree with you. Here´s and additional bullets to include in the 'magical world' of the marketing 2.0:
* Where are the 'conversion to real sales' metrics of social media?