Inch by inch Facebook is turning into a real company. And that's not a compliment. Then again, with an IPO reportedly just around the corner who can blame them.
Da Book's has decided to contaminate your news feed or at least a variant of it, with sponsored news feed stories — what passes for advertising in some parts — but looks like spam to the rest of us. And that has excited commentary across the Nerdosphere. Initially, the ads will only appear in that little box off to the right which tracks your social activity, rather than in your main news flow, but we all know how this romance ends. Then again, Facebook got away with Sponsored Stories last year so maybe they are banking on fooling all of the people all of the time. As Techcrunch reported, the social story experiment "seems to have gone without significant backlash, leading Facebook to allow Sponsored Stories to appear in the standard Ticker that shows activity stories such as users listening to songs, reading news articles, leaving wall posts, or adding new friends."
When you are looking to flog your stock on the open market it’s best to give the punters some satisfaction that you can generate $5 billion a year in EBIT to justify the make-believe market cap which irrational exuberance has thrust upon you. So the temptation to pump the inventory is understandable.
Frankly though, Grok would have waited a little longer before pulling a stunt like this. Facebook's current valuation is built upon two pillars. Firstly, one is its phenomenally fast and vast scale and the fact that its 800 million registered users are mostly affluent, overweight and anxious westerners. On second thought, let's call it 700 million to account for all the bullshit artists, fakers, con men and scammers who occasionally double up their accounts. Secondly, (and ok, let's not over state its importance vis-a-vis the first point) Facebook's very magic also informs the valuation. What do we mean by the magic? Words fail us, but you already know what we mean. Facebook is different. It's ours. It's us. You know, "It's the 'vibe' of the thing, your Honour." And this latest update to its commercial model, once again tarnishes that magic a little. Peter Pan is growing up. None of which is to say a Facebook IPO won't be insanely successful. But the world has moved on a little in the last six months.
Grok has written before about our scepticism regarding Groupon, the most recent top shelf IPO, and the fact we think the stock and the business model is a train wreck waiting to happen. By the way, Groupon (GRPN) stock is rapidly heading south, back down towards its listing price. Facebook, unlike Groupon, is the real deal, and if ever a man earned the right to trouser every last lazy dollar from the market it was Mark Zuckerberg. However, now that the news of Facebook's stock price decline on the secondary markets is filtering out into consciousness those predictions of a $100 billion market cap are looking a little toppy. Guess it will have to settle for $70 billion instead of triple digits. Hear the sound of the world's smallest violin playing the world's saddest song.
Will locals follow the NYT lead and does it matter?
Media business models in the age of frictionless sharing are challenged at best. Your humble Grokker even contributed to the debate recently on CIO with this gentle and restrained submission called ‘Free news, paywalls and the slow death of media.’
The New York Times is being held up as the beacon in the dark by many people who ignore the fact that its vast global scale confers upon it an advantage lacking for most city based or even national titles. Now it has taken its paywall model to the next logical level by offering digital subscriptions to corporate customers, according to paidcontent.org. It seems an obvious way to build further scale for the NYT, and it will probably be a model copied endlessly around the world — so expect phone calls shortly from corporate sales teams at News Limited and Fairfax Media.
But like all such plays on the internet, it's the unintended consequence that smacks you every time. Take cannibalisation, for instance. How many of the people getting their subs paid for by the company already have a personal subscription? On an account by account basis, are you trading higher average revenue per user from your traditional old fashioned print subscribers for a lower one from bundled print and online users getting corporate discounts? And what's the impact on incremental sales? Often these are the questions left unasked in the rush to "Do something, anything." Alas, if only activity was a genuine substitute for strategy.
Media is just the most obvious sector to have to handle these hard and unpleasant conundrums. The music industry and the book publishing industry are two others, and look at how well it ended for them. Often the latest online model seems like a good idea, or at least a chance worth taking, and it may well be for the Gray Lady. But for others, figuring out whether it’s an Arab Spring, or just the latest in a series of long, cold, grim, wet weekends, is an uncomfortable case of ‘Ready. Fire. Aim.’
Andrew Birmingham is the CEO of Silicon Gully Investments. Follow him on Twitter @ag_birmingham