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People bought Enron stock as well.
John Hussman Critical of Facebook’s Business Model
June 11, 2012
By GeoffreyM
Share8
With Facebook Inc (NASDAQ:FB) trading down 27 percent from its IPO price, there is no shortage of fund managers, analysts and even layman investors slamming the company. In John Hussman’s weekly market commentary, he continues this trend with a good look at Facebook’s overall business model and why it doesn’t work like Amazon or eBay Inc (NASDAQ:EBAY) do.
While Dr. Hussman applauds the innovative nature of Facebook as an interesting company and platform, he is quick to question the underlying business model and how it appeals to investors. When users are on Facebook, they are there to catch up with friends and keep current with their social circle. Advertising has limited value in this type of environment as users aren’t looking to leave the site and make a purchase or learn about a product. That is not what they are on Facebook for. This clearly differs from Amazon.com, Inc. (NASDAQ:AMZN), eBay Inc (NASDAQ:EBAY)
or even Google Inc (NASDAQ:GOOG), where visitors are searching out information to make a purchase or learn about a product. Clearly, advertising has much more value in an environment where users are actively seeking out advertising information.
The reality is Facebook has dubious opportunities for major earnings growth. Further growth of the application development side of the Facebook platform offers some potential, as does a slow but steady increase in advertising. None of these potential sources of growth ever justified a $100 billion valuation however, and that is reflected in the current stock price, a stock price that will likely continue to fall.
Hussman argues that these kind of IPOs have a negative impact on the economy as whole as it represents a poor allocation of investment capital. If the economy continues to choose poor investments based on hype or popularity, the real value engines will be starved of capital and economic growth will be impaired. Perhaps this is what we’ve seen in developed market economies over the past four years, a poor allocation of capital to investments not worth the paper they are written on, whether that is a speculative technology IPO or sovereign debt obligations that are impossible to truly repay.
http://www.valuewalk.com/2012/06/john-hussman-critical-of-facebook-inc-fb-business-model/
See, you make statement s that are so easy to disprove. Yardsellr Beachmint and Fab.com (as noted in the above article)find all sorts of Value because they are making a success at using Facebook as a Commerce site. BTW I love your article about "John Hussman Critical of Facebook’s Business Model"
I especially like the part about how Google knows what they are doing but Facebook doesn't its just so delicious. The irony I mean. See when you read that article then you read this one:
Apple kicks Google Maps off iPhone, adds Facebook
Seems the most profitable Company in the world sez Thumbs up to Facebook and thumbs down to Google.
Hahahaha Keep trying Sparky.
FB is popular, that doesn't mean it is useful to the real world.
FB is simply a social media for those who haven't much better to do in their lives but put up pictures of themselves and beg people to 'like them'.
As I said before, if FB disappeared tomorrow, the world would take very little note, FB has very little real significance in the world and nothing you have posted has proven otherwise.
But keep trying, I enjoy a good laugh everyday-Sparky.
Facebook is a Ponzi Scheme
Now that you know what a Ponzi scheme is, I will tell you how and why Facebook is like a Ponzi Scheme. The argument is similar to how Paul Graham describes that Yahoo was a ponzi scheme in 1998.
Facebook posts huge revenues. In fact, recent reports are that Facebook is very profitable. This boosts both their respect in the world and their valuation. However, these returns, while real, are unsustainable. They exist and are sustained in the same manner that Ponzi schemes are. Facebook is a Ponzi Scheme.
Have you ever bought a Facebook ad? I have. I have talked to many, many people who have. We have spent hundreds, many have spent thousands or even more, experimenting with Facebook ads. They are worthless. Nobody ever looks at them, and nobody ever clicks on them. I just talked to someone who was trying to promote a book. He found it cost him over $100 in ads to sell one book. Moreover, as you increase your ad spending, people get used to the ads and just ignore them. So, your already low click-through rate plummets even further.
People go to Facebook to interact with their friends. It is fundamentally different from the ad platform that is Google. People go to Google to find something they need, possibly ready to buy, which a good percentage of the time can in fact be solved by someone’s ad. Facebook ads, on the other hand, annoy users. They yield no real value, and thus no profits.
But, then, how is Facebook so profitable? Are they lying? No. They are growing. More and more people sign up to Facebook, and more and more businesses hear about how many people are on Facebook. It seems like a huge opportunity. TV shows and award-winning movies are made about Facebook.
Because of Facebook’s presumed success, many small, medium, and large businesses individually and in turn experiment with Facebook ads. They spend hundreds or thousands or more on Facebook ads. At the end of the first run, they see bad ROIs. They tweak the ads and spend more money and try again. Nothing. So they stop, understanding that Facebook ads are worthless. Almost everyone I’ve talked to who has actually bought Facebook ads knows this. But, not everyone has bought Facebook ads yet. There are still more and more new businesses finding out about Facebook ads. As they grow, even more businesses give their money to experiment in destined failure.
Eventually, though, and this might take a long time, but it is finite, everyone will have tried Facebook ads and know that they are useless. Eventually, after 10 million businesses have invested $1000 each, and Facebook has earned $10 billion in revenue in total, then they will have run out of new customers and their revenue will dry up. A useless product is never sustainable. I wish I could short Facebook.
Now, it is possible that some extremely niche businesses have found limited utility from ads (for example, BustedTees and social games may be the lucky few). It has been shown, however, that some of the biggest advertisers are huge, outright scams and others have deceptive practices at best. Also, Mark Zuckerberg might have a fit of brilliance and then announce a revolutionary ad platform that somehow actually works on social networks. My guess is not. They haven’t yet. What is clear from everyone I know who has advertised on Facebook is that it was a waste of money. Facebook promises big returns on ad spending, but delivers nothing. Yet, their value and growth continues because they can use that money to grow their user-base more and assert profitability (in this sense it’s not quite entirely a ponzi scheme, but there is no closer idea). It’s possible that they do not even realize that they are like a Ponzi scheme.
That’s right, they may not even realize that their ad platform is completely useless because they always get new clients signing up and giving up their offering to the god of web 2.0 hype. They may be blind, as I used to be. They may be truly surprised when the supply of suckers runs dry.
More likely, in the end, they will get teenagers to pay a monthly fee to host all of their party photos. Of course, then the next VC-funded Facebook (just as MySpace killed Friendster, and Facebook killed MySpace, so will NextFB kill Facebook) will offer the same services and be free and take over the “market.” The cycle repeats itself.
Facebook is a free service like a pleasant walk in a public park. Its users don’t give a damn that GM lost $10 million paying to display useless ads, which they had paid, hear this, $30 million to develop. Its users don’t give damn that investors who paid $38 per share are now losing money on paper holding the stock. If people want to tell their Facebook friends what they had for breakfast, it doesn’t bother me like it appears to bother some of those unlucky investors and those advertisers who hadn’t gotten their money back.
Facebook, as I see it, and as I use it, is what we had been promised a few years ago - a first successful attempt to individualize information flowing to us. I get pings about new book and music releases from the artists or publishers that I have selected, I get news of the sort that interests me, and communications from friends, however frivolous they may seem to those who think they are smarter than us and above it all. And I was very skeptical myself before joining Facebook, which was under pressure from a family member with whom I had some business dealings more beneficial to me than to her.
How and if Facebook will make money is of no concern to me. Why should it be?
Right. Apple embedded Facebook into their OS> and Excluded Google. Businesses are having success at using Facebook (Like in the Article posted above.) Hello Music is now totally integrated into Facebook, Even has a secret Facebook only part of their store. And they give away over 3000 Dollars in prizes every month to Facebook users only (You must be on Facebook to win.) They aren't going to do that unless they get a really good ROI now are they?
As explained Churches Civic Groups Municipalities and Businesses all use Facebook daily if its as you say "Only for people with nothing better to do in their lives than talk about themselves" why are all these entities like listed above putting all the time and effort into Facebook? See, your premise is totally disproved by evidence. If Facebook was nothing more that what you say it is All those businesses and Such wouldn't waste their time with it.
And that Friend is Game... Set... Match!
The fact that FB is being used in other ways doesn't change the fact that it is still essentially a social media, which means primarily entertainment.
Thus, for all practical purposes it is really has no great importance in the real world.
If it disappeared tomorrow, the world would take very little note of it, simply replacing it with another form of social media.
Your 'defense' of FB is simply that people are using it, that doesn't make it valuable in the real world, only popular.
There is nothing about FB that is not replaceable or crucial to life.
Game over.
Thank you for playing.
Surprise! Facebook, Twitter still not THAT important for news
Social media is over-hyped, concludes report
http://www.theregister.co.uk/2012/03/19/pew_research_social_media_and_news_consumption/
Mark Zuckerberg, the man with the second most punchable face in the world (Smug, simpering Peter Tachell is first) is nothing if not a vainglorious, egomaniacal, fuckwitted, festering gobshite and a supperating syphilis sore on the bell end of humanity.
Announcing a plan to float the non porofit making idiots paradise website Facebook on international stock exchanges Zuckerberg compared the flotation (which will net him over $1billion) to the invention of the printing press in its importance to the future of humanity. The Printing press made books, Facebook has no product except the personal data it steals from its users. Boggart Blog comapres the flotation of Facebook to the invention of the Ponzi scheme.
Being a former I.T. pro with many years experience behind me and also an enthusiastic reader of printed matter all my life I know a bit about technology and printed matter. And I cannot see any way in which a printing press could be used to bombard me with trivia and advertising targeted to my personal tastes or to steal my personal data.
http://greenteeth.blog.co.uk/2012/02/02/facebook-as-important-as-the-printing-press-12619380/
The other question you might well ask is, “Have the stock markets learned nothing from the dotcom crash.”
The answer to that is yes, they have learned that enough people are so besotted with technology they are stupid enough to invest their hard earned in pile of porcupine poo if it had has an internet connection and thus make fortunes for the bankers and brokers who handle the share sales.
There really is very little hope for western civilisation.
Historical footnote: Johannes Gutenberg, inventor of the moveable type printing press, made little money for himself but benefitted almost every human being who lived since is invention was launched, made it easy to share knowledge and made the great joy of reading available to the masses. Mark Zuckerberg made it possible to tell everyone in the world that you had a wank last night.
http://greenteeth.blog.co.uk/2012/02/02/facebook-as-important-as-the-printing-press-12619380/
Facebook’s Stockmarket Launch Fizzles Out
by Phil T Luker
An old colleague who is a markets analyst analyst in the City of London, told me last night that Facebook’s shares which shot up as soon as trading in them opened and then almost as quickly fell back because they were implausibly priced given the company does not really have a business plan, relying for income on shoving more and more advertising down users throats and has a ridiculous p / e ratio of 150 : 1 Because of these factors he said, stockbrokers and investment managers were cautioning institutional clients against putting money into a company that could easily become and investment bubble.
Such recommendations came thick and fast less than 24 hours after Facebook’s stock market debut which saw its shares end the day just 23 cents higher than its float price, at $38.23, valuing the company at $104.2bn. What’s wrong with that? It’s insane, that’s what is wrong with it Here’s why it is crazy. Normally, an investor would hope to earn at least 5 per cent on an investment – ideally more, since historically, you can earn that just buying Government bonds or plonking your money in a deposit account. So for a company to be worth $104 billion, you would hope for at least $5 billion a year of profit. Really, to justify the risk of owning shares (the value of which can go down as well as up - but more likely down), you’d want more – $10 billion. In perpetuity. Every year. Sine die. Forever.
But Facebook’s revenue is currently just $3.7 billion, and its profit is around $500 million per year. So the website is making less than one tenth of the profit you would hope it to earn in the long run
The Facebook launch was hyped beyond reason for months with hysterical tech heads deluding themselves that Facebook’s only product, the information it steals from users and sells to advertisers purportedly to enable them to target users with personalised advertising was a money making perpetual motion engine.
Most of the advances in web technology in the past ten years have been driven by the belief that web based advertising would be a bottomless well of money into which anybody with the know how to cobble together a simple HTML page would be able to dip into at will. In fact web users have developed a level of ad - blindness that makes web advertising almost totally ineffective. And with the intrusions into our privacy by companies like Google and Facebook becoming increasingly creepy and offensive that is only going to get worse.
Transaction filings after the market closed on Friday night revealed the extent to which the banks who led Facebook’s initial public offering - in which $16bn of shares were sold to new investors - were forced to move in to the market and buy shares in order to keep the price above the $38 level. Morgan Stanley, Facebook’s lead financial adviser, ended the day with 162m shares, worth $6.16bn. Other banks including JP Morgan and Goldman Sachs also bought shares, ending the day with $3.2bn and $2.4bn holdings respectively.
In short, after stealing $16bn form novice investors, most likely tech heads who believed the hype so it’s difficult to have any sympathy for them, Facebook’s shares took a massive hit. Quite right too. Zuckerberg and Co are a bunch of dysfunctional arseholes, solipsists who believe the fact that they can do something makes it OK for them to do it. They should have been declared not fit and proper people to run a public company. If competent businessmen had been brought in to oversee the launch it would never have happened.
The ‘sell’ recommendations to investors will make Facebook’s stock market handlers even more nervous ahead of the resumption of trading on New York’s Nasdaq exchange on Monday morning.
“While we like the company, we’re troubled by investors’ perception of the risks,” one investment manager said. “It’s priced for perfection and that’s clearly implausible.”
Well Zuckerberg and his stupid little buddies do not think so and therein lies the problem. These are people who believe that computers think intelligently like humans, that software can me the master of the world and that those who control the information control the past, present and future. In short they are fools besotted by technology. Thus they are doomed to fail.
Despite amassing more than 900m users and tripling its profits to $1bn (632bn pounds) over the last three years, Facebook now faces the challenge of squeezing more advertising from the site without angering the users that are its chief asset. The need that Facebook will have to make further acquisitions, and a still unproven advertising model are two of the reasons why many analysts think Facebook shares are worth just $30 each. In the long run even that is likely to prove unrealistic.
Anybody thinking of putting a sizeable chunk of their hard - earned into Facebook should learn from the MySpace experience. In 2005, Rupert Murdoch made one of his greatest business mistakes: the media mogul bought MySpace for $580 million. Until 2008, MySpace was the world’s most visited website, and until 2009, America’s, pulling in 70 million unique US users a month. And then all of a sudden, it died, as users fled. Despite being profitable in 2005, by 2010, the website was losing money at a rate of $180 million a year. News Corporation was so desperate to get rid of it that it sold for just $35 million. Now MySpace pootles along just about where a social network should be, irrelevant but mildly amusing for the terminally bored.
The reason why MySpace died was simple: its users migrated to Facebook, which had a cleaner user interface and fewer adverts. What potential investors should learn from this is that Zuckerberg and Co are so arrogant, so afflicted with hubris they do not learn from the past, thus in the belief that users were gullible enough to fall for “targeted ads Facebook have saddled them selves with a user interface that is about as attractive as a dogs arse and a reputation for treating users privacy concerns with contempt.
But let’s cut through the Facebook hype. How many of those 900 million usrs are real. Well knock off a third for duplicate and abandoned accounts Then there are so many people like me, we probably count as “regular users”, but only log in to check messages once a week maybe.. Because I have websites I use the “share on facebook button” to post notifications of new posts but this is not really logging in. More and more people access Facebook through mobile phone and PDO apps which filter out the ads. Facebook does not give users a blog feature or let them post their creative work, it has never been much more than an electronic address book and photo sharing site. That’s why big advertisers, like GM, are reducing their spend on the company.
And who is in control of this revenue-less, glorified address book? A Harvard nerd who is barely out of short trousers and has the most punchable face in the world, whose last big decision was to blow $1 billion on a photo sharing website few people have signed up to because the world needs another photo sharing site like you and I need another hole in our arses. When I say Zuvkerberg is in charge it may come as a shock to many tech - heads to learn that the shares being now sold to investors have no voting rights attached. You may own the shares but Mr. Zuckerberg controls the company and he can do as he pleases with your money. And when Zuckerberg founded his plaything it was not intended to be a business that made money.
Facebook has no valuable real assets, no product to sell or distribution networks which can be sold on should the -ahem, business model - fail. It’s nothing but a bunch of servers in California and an egomaniac CEO. And increasingly, it is boring. Even as it spreads to Brazil and China, it’s being abandoned by the western college students who made it. Honestly, I would sooner invest in Greek government debt. Or MySpace
http://www.greenteethmm.com/facebook-fizzles-out.shtml
6 tricks and tools for kicking your Facebook addiction
6. Turn off the computer.
There’s a great big world out there beyond the Facebook news feed. You could be doing so many other things with the time you spend browsing everyone’s Timeline and waiting for the next status update that pops up. Go out and meet people in person. Begin a new exercise routine, take up a new hobby, or learn a language. Get out there and experience life as generations did for centuries before there ever was a Facebook!
http://www.tecca.com/columns/kicking-facebook-addiction/
Also Churches, Civic Groups Municipalities, State and National Parks, Etc. are all using Facebook and spending much time and effort to do so spreading info about their places and causes.. So IF it as you say only for People who want to talk about themselves then why are all these other entities using Facebook.
You can't answer such because by the very act of these Millions of entities who are not individuals posting about themselves on Facebook using Facebook to promote their Groups/Causes/Businesses it invalidates your premise. Its basic Logic my Friend and you can't get around it. QED.
What I said that most of what it does is for social chatting.
I never said that it is not used in other areas, but that that was not it's primary use.
So, again, the fact that it is used even in those areas, does not make it valuable to the real world.
It is mostly (note the word Sparky) a social network for people to talk about themselves.
And as such, if it disappeared tomorrow the world would take very little note of it's ending.
People would move on to other things.
So, once again, your attempt to set up a 'straw man' argument has been proven a pathetic failure.
But you keep trying-Sparky.
Implications Of The Facebook Let-Down
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June 2, 2012
Host Scott Simon talks with Joe Nocera, op-ed columnist for The New York Times, about the rocky debut of Facebook as a public company and what it means for the markets and the tech industry at large.
Copyright © 2012 National Public Radio®. For personal, noncommercial use only. See Terms of Use. For other uses, prior permission required.
SCOTT SIMON, HOST:
You know, if Facebook were a Broadway show, they’d be firing the director and rewriting the script. Facebook share price closed this week at $27.72. That’s more than a 25 percent drop from its initial public offering price. The social network’s debut as a publicly traded company last month has been panned, questioned and trouble by a Securities and Exchange Commission probe and shareholder lawsuits.
Joe Nocera, our friend from the business world, joins us now. He’s op-ed columnist for, what’s it called, The New York Times, Joe? Thanks for being with us.
JOE NOCERA: Thanks for having me, Scott.
SIMON: Facebook’s still worth a lot of money, but why has it fallen so flat so far?
NOCERA: Ah. Well, there’s a reality-based reason and there’s a psychological reason. The reality-based reason is that it has shown signs of slower growth and it acknowledged that a little bit before the IPO. And a lot of questions are being raised about what its ultimate business model will be. You know, how it will generate the kind of earnings that it needs to have the kind of super-charged stock that everybody wants it to be.
The psychological reason, though, is that, you know, this was the most anticipated IPO, I think, since Google, I mean, a really long time. And everybody wanted in and everybody thought the stock was going to go up and everybody thought they were going to make a killing. And then, they didn’t. And so people are shying away from the stock just because the IPO, which is ultimately a meaningless event really in the long term, because the IPO did so poorly.
SIMON: And Facebook has, I gather, what amounts to two classes of shares that allow the founders of the company to keep more control. How typical is that?
NOCERA: Well, in Silicon Valley, it actually is quite typical. Google has the same thing and a number of other Silicon Valley companies have the same thing. And they do it for the obvious reason. You know, Mark Zuckerberg at Facebook wants to keep running this company without really having to answer to the shareholders who are buying into the company.
You know, it’s hard not to have some sympathy for him. He did found the company, after all. But it’s also another reason why investors have to be a little bit wary of Facebook because, ultimately, you know, Mark Zuckerberg does not really have to listen to anything they have to say.
SIMON: Yeah. Of course, you buy stock knowing that he’s going to have a prominent role.
NOCERA: That’s right. And, you know, he’s 28 years old, but his track record is really quite remarkable. I mean, Facebook has almost a billion users and it has been a roaring success. And he has proven himself to be, I think, a first-rate CEO so far. The larger issue, Scott, is what kind of business model are they going to have?
And it’s a very tricky proposition, whether you’re 28 or whether you’re 50, because if they ratchet up advertising too much, they lose their coolness factor, which is very, very important to them. And yet, if they start to rely - if they try to make money off all that personal data that they have, that raises privacy concerns and it gets government involved and that creates its own set of problems. So they’re walking a fine line. And the real question is, can they walk that fine line and make a ton of money?
SIMON: How, if we might call it Facebook’s troubles, what they’re going through now, might that change the psychology of Silicon Valley and other venture capitalists who are contemplating sinking tons of money into the next big thing?
NOCERA: Well, one of the things that you have to remember about Facebook is that it’s not a brand new company. As these things go, it’s actually fairly mature when it came to the public market, and so, you know, the Silicon Valley folks, they’ve already moved on. You know, they’re looking at mobile. They’re looking at apps. They’re looking for all kinds of things. Social media is kind of - is old. And so, you know, I would argue that the psychology is actually already changed.
SIMON: Joe Nocera, op-ed columnist for The New York Times, joined us from the studios of their radio foundation in New York City. Thanks so much, Joe.
NOCERA: Always a pleasure, Scott.
http://www.npr.org/2012/06/02/154197660/implications-of-the-facebook-let-down
Never said that it was FB ONLY use, but that was it's primary use.
So, again, you mistake popularity for value.
Those organizations would find other means of communication without FB.
So, the statement stands that the world could easily do without FB, it has no essential value that cannot be replaced by other communication outlets.
"The reason I am not on it because it is nonsense. It's only purpose is social."
Post 23 you posted this: " I never said Facebook was 'wrong' I said it had no useful function, it is purely social. "
Then in post 216 you Post this: "No, once again you try to set up a straw man and then accuse me of 'morphing'. What I said that most of what it does is for social chatting. I never said that it is not used in other areas, but that that was not it's primary use. "
Then in post 218 you Post this: "Never said that it was FB ONLY use, but that was it's primary use. "
So now you are just outright lying with undeniable proof you are, staring you in the face on this very thread. Face it dude you are a liar and have no concept on how to construct a logically sound premise.
What business is it of yours what Mad Dawgg does?
Please point out the post where he asked for your advice on how to run his life?
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