I was called for a job interview. And, I’m going. [Record scratch!] Why am I going? I’m self-employed. I’m a captain of industry. I’m freewheeling. I’m free. So: why? Why go?
I lived through the last DotCom crash when the house-of-cards of 2000 was blown down by the Microsoft anti-trust decision. It wasn’t Microsoft that did it, that was the boulder moment, but all of the pebbles were in place. Tech stocks became toxic. Start-ups fizzled. The workforce that was building online pet stores and flower delivery systems were washed out to sea. They clung onto the tech jobs that were available like life rafts. Suddenly, tech work was much harder to come by. The people making the deals were flakier and the whole situation sucked. I made it through by the financial skin of my teeth.
I hung out my shingle last year. The money has been okay-- all-in-all, it’s great, but it could be better. My ability to stay afloat depends on consumer confidence and the availability of work. I don’t have a rock solid level of confidence in the techno-financial landscape. There are a spate of shaky sites out there. Groupon was courted by Google, but they turned them down. Groupon descends on its clients (the merchants) and unleashes the locust-like hoardes of customers. A few Groupon-serviced businesses in Victoria have gone under.
Twitter has little hope of monetizing itself. It’s wildly popular and they should have tied commerce closely to their model three years ago. Too many dates and not enough action: Twitter won’t be able to woo us into spending cash now that we’re so used to getting it for free.
Pinterest has no real way to monetize its service but it’s burning through cash and it’s darling of the VC world at the moment.
Instagram was bought by Facebook for over a billion dollars. Instagram: make your good photos look bad and share them with friends. Somehow a bad idea combined with a tired idea equals one followed by nine zeroes.
When Facebook launched its IPO at $38/share, it estimated its own worth at $100-billion. Some of that value comes from what it will do in the future, what it generates now in ad sales and how it can peddle its data. Some of that valuation is cocky stupidity.
The future is bad for Facebook. They have the wealthy 750-million accounts on their site now. Some of the accounts are bogus (my sister has three accounts). Some are dormant (an old friend logged on two months after the birth of his son to announce it). Maybe they’re going to get another rich 100,000 people in the future. Heck, by getting onto Facebook, a few thousand poor people may end up rich. By and large, the coming users to Facebook will be poor. They’re coming from poorer locations of the world. They’re people who can afford their first computer, a crappy hand-me-down. If the existing 750 million users are worth $100-billion, then they’re supposed capable of generating $1200 each during their lifetime of membership: a net generation of $1200 of revenue. If I’m worth $1200 because I’m a Westerner spending in North America, ask yourself about the buying power of a guy with a hand-me-down laptop in a cafe in Senegal? The future is not good for Facebook. They are going to have more users, bigger headaches and each user will have less cash available.
Eventually advertisers are going to go cold on Facebook. Facebook ads are driven by placement bidding. The more frenzied an ad spot, the more expensive it is. If you want to run an ad, you may have to spend $1 per click. Clicks are easy to do. If you hate an advertiser: click on their ad. When someone clicks on an ad, the advertiser is charged $1. The user is taken to a page to woo the user and turn them into customer: to convert them from a user to a paying customer, you have to have good luck, awesome advertising or a large number of visitors. It’s possible that you could spend $50 to get one customer who spends $10. General Motors figured this out and pulled out from Facebook advertising. Advertising is only worthwhile if you have a positive return on investment. Facebook is generating a negative return on investment and increasing volumes of advertisers will give up and take their money elsewhere.
There is the lure that big data can bring about a predictive algorithm. With the patterns of 750-million users, you can get an idea of what people are doing. If people always walk A->B->D->C, then when you see them go A->B, you can make option D easy to come by: satisfy their hunger for the next page, the next option, the next whatever. That has two problems: First, if you shut off unpopular options, you mutate behaviour. I never buy ginger beer, because it’s unavailable, not because it’s undesirable. Second, people’s behaviour may be blurry to the extent where you cannot predict their behaviour well enough. I devoted six months to the problem. It’s solvable, but it’s not solvable well. You can predict that Monday will bring more traffic, but you can’t predict when Joey logs onto his favorite website. If Big Data from Facebook cannot be used well, it’s not going to be worth much money.
Facebook’s stock began to drop soon after its IPO. Week-to-week, it’s going to go down. The fall from $38 to $32 sucks, but it’s just how the market fluctuates. When Facebook adjusts to $20, the writing will be on the wall. Facebook isn’t worth money. If Facebook is worth no money and it’s so big, so awesome and so pervasive, what about those little sites out there? That question is a tough pill to swallow. I live a full life without Foursquare. Many people I know sleep at night without a Pinterest account. If Facebook is worthless, these other start-ups are hollow. They’re trojan horses of investment.
I think this year will play out like this:
- The Facebook stock will rally and drop between now at November. It will move into $25 range because of concerns over the company’s health and earning capacity.
- The European economy is rattling. That will eventually come to a head. I think it will come to a head this Fall. As capital flies around and credit goes mental, people will pull in their money. They’ll back sure bets: gold, oil, solid companies and the like. Facebook will look devoid of potential and its stock will go into freefall.
- Fears about Facebook will cause people to pull out their money from other startups and voila: we have a repeat of the DotBomb of 2000.
- The stock price of Facebook will fall to a temptingly low price. Zuckerberg will be hounded until he gives up enough stock allow for a controlling takeover. Google, Microsoft or some cash rich concern will take on Facebook. While Facebook could not realize $1200 per head from its users, it may be able to realize $400 per head and some company will see that and seize the opportunity.
- Bloodied and beaten, investors will pull back from the lure of tech stocks and the cycle will begin again.
- Facebook, the big daddy of social media, will be bloodied too. Social media will get some guilt by association. Facebook’s faceplant could be an indicator that social media isn’t worth all that much. If Twitter cannot monetize itself and Facebook shows off that social media is deeply overvalued, Twitter may close up shop. Why not? It doesn’t make money. Ask yourself: how well will social media function if Twitter’s corpse is owned by AOL and Facebook can’t support expensive functions like SMS or email notifications?
- All of those social media types who didn’t have to worry about web design to carry out their fabulous careers will be tossed to the street. Business and organizations will do without the social media gurus on their payroll. Because of the $70-billion of capital flight that Facebook is responsible for, social media will leave a bad taste in the mouth of many. Maybe there will be much less social media out there to work with.
Because of Facebook, I am being pragmatic. I will go for the interview. I will put my best foot forward and try to shine. As a guy who has worked in technology for the last 15 years, I am not eager to live through the next DotBomb.
I am not closing up shop regardless. I would like to keep doing what I do now, just do more of it and do it more successfully. Unfortunately, the beast of Zuckerberg is a great horse to ride for stock traders who practice elaborate Ponzi schemes using Facebook as an investment vehicle. Facebook may well suck down the commercialized Internet into a gravity well like a black hole, so it’s pragmatic to take a job interview.