Tuesday Grok: Is Facebook already more profitable than Amazon?

The march of fate, the march of folly

Relentlessly, and from far away it seems effortlessly — Facebook marches on. The future belongs to Mark Zuckerburg, or at least a few fleeting years of it, as it once belonged to the Tom Watsons at IBM, Bill Gates at Microsoft, and Steve Jobs at Apple.

No less a man than Steve Jobs, who like Gates and the Watsons, understood a thing or two about world domination and gave ‘The Zuck’ a ringing endorsement, according to his biographer Walter Issacson. "I admire Mark Zuckerberg for not selling out," Jobs said.

But today's angle is not about Steve and Zuck, or about privacy, or customer acquisition, or product development. It's all about the money. And this year for the first time, Facebook is likely to overtake Amazon in profitability, according to the Uncrunched.

This matters because Amazon, along with eBay and Yahoo (remember Yahoo), are the original stars from dotcom 1.0. Google came later — that's hard to believe now. But 15 years ago we were all Yahooing; many were Alta Vista'ing or even Looking Smart. (Don't bother googling Looking Smart, if you don't get the reference. The G won't help you).

According to the <i>Uncrunched</i> , publisher Michael Arrington, "In the first six months of 2011 Facebook had $1.6 billion in revenue and about $800 million in operating income, says a source I trust a lot. That revenue number has been reported before. And the 50% profit margin is in line with last year’s $2 billion in revenue and $1 billion in operating income."

It's the margin which is stunning at Facebook. Even as it scales, it manages to hold onto one dollar in every two. Compare this to its class enemy Google which is spending three dollars out of every four. Amazon of course moves real stuff around the world, in boxes and by the bucket load. This means supply chains, warehouses, call centres — all the things that suck the living fun out of running a business.

Facebook sells space

Mostly it sells space to advertisers - in increasing and frighteningly large volumes. But it also sells space to partners like games platform Zynga. And as Arrington points out, Zynga and Facebook are joined at the hip, or rather the hip pocket. "Zynga sent Facebook some $250 million in the first half of the year, or about 16% of the total Facebook revenue for that period," he wrote.

Of course Amazon murders Facebook on the revenue front, generating a whopping $10 billion a quarter. But as the article concludes, Facebook is still only getting started. And a postscript. It was the Uncrunched who first reported a slow down in the secondary market for Facebook stock. Last Friday Arrington noted that Second Market again failed to clear any shares in its most recent auction. The future is a cruel mistress.

A bad state for First State supplier

The SMH continues to make easy miles out of First State Super, which regular readers will recall had a slight mishap with its security, then went Full Metal Jacket on the customer who helpfully pointed out their folly. Turns out the company who is responsible for the day-to-day operations at First State Super — Pillar Administration — will next month “take over the super fund for federal politicians, police, ASIO spies, department heads and other federal public servants,” according to the <i>Herald</i>. With surprising alacrity for a bureaucracy, the Fed's have ordered a review of Pillar's IT systems, according to the report. Thus, it proves once again that comedy is when it happens to other people and tragedy is when it happens to you.

Going Cheap

Finally, for those of you who plan on getting a large flock of friends together and buying Groupon stock in bulk (assuming the merchant can afford to fulfill the order) here’s a sneak peak at the pitch document. Groupon CEO Andrew Mason is currently hawking it around finance houses in the US. It comes courtesy of Business Insider.

Grok won’t be lining up with the crowds. Comedy, after all, is when Groupon happens to other people.

Andrew Birmingham is the CEO of Silicon Gully Investments. Email AndrewBirmingham2010@me.com or follow him on Twitter @ag_birmingham

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