Sunday, 13 May 2012

This Week In Tech: Facebook IPO is Massive Ponzi

         White sans-serif on blue.  It sure isn't a swoosh, a siren, or an apple


It's the biggest cultural and technological phenomenon of its generation.  Mark Zuckerberg is the most extreme, hoodie-wearing, 27 year old tech CEO in the world.  One in three people on Earth has a facebook profile.  And in two weeks, Facebook will sell stock, real publicly traded shares, for the first time in the biggest IPO (initial public offering) in human history.

And the results are in...I'm opening an envelope...WHO CARES?!

Oh don't worry.  I know.  This is all over the media and it will be for at least a few more weeks or months, hitting a fever pitch in the days after May 27.  Media, myself included, has a job of attracting eyeballs, after all.  And Facebook is very popular, there's no doubt about that, just like other huge wastes of time such as Angry Birds, Sudoku and Canada's Got Talent.  The reasons why this public offering will be a huge flop are not complicated.  You don't need to be a ticker-obsessed, sleep deprived market maven to figure it out.

A while ago I was reading an article along the lines of "The Nine Keys To Success" in Fortune or Success or one of the other Gold-tie wearing, corporate fist-pumping periodicals.  I only retained the one that is relevant for our analysis here today: ship.  That's right.  People who are successful in business ship.  You can talk about synergy and deal-making and hot money all you want, but it doesn't mean anything if you don't ship, which is just a bad-ass way of saying do you have a profitable product or service going out the door of your company.  Any company that is preparing to go public and have to answer to shareholders and the media on the quarterly basis on how its generating revenue thus must answer: Do you have something to ship?

The answer, in Facebook's case, is an emphatic no.  Not only do they have no sustainable revenue to attract shareholders, they have no interest in gaining any.  Facebook's revenue currently is made up of the random ads you see on your page that do not motivate you to buy anything (87%) and royalties from those stupid games people play (Farmville, Mafia Wars - 13%), who themselves earn revenue from the tiny percentage of users dumb enough to pay for enhancements.  Even they have a sounder business model than Facebook

So to talk about Facebook as the latest "tech giant" in the mold of google, microsoft and apple is totally ridiculous.  One of these things is not like the other.  Hint - it does not ship.  Microsoft, love 'em or hate 'em, made the first mass-produced operating system and licensed it out for a fee, a business model that is still their bread and butter today.  Windows packages shipped and transactions processed year after year.   Apple said that other manufacturers could go screw themselves and they weren't licensing anything - it was their hardware and software end to end or the highway.  It earned them a small amount of devoted followers and some niche clients and nearly killed them until they came up with some killer products and became the biggest company in the world.  Google made the world's best search engine and found a way to monetize all the traffic, clicks, ads and page clicks on the Internet.  It's hard to do business on the Internet now without talking to them - there's your sustainable revenue.  Results and customers shipped to e-commerce people.

What has Facebook done other than cause real drama in the lives of teenagers and fake drama in the lives of baby boomers who are using it to relive their teenage years?  Nothing.  And what did Facebook get paid for these drama-causing services? Nothing. 

We must acknowledge the possibility, however, that with Facebook's high profile there must be a few people who know some basic things about business around Zuckerberg.  We can admit at the very least, that Facebook could use its resources to develop a killer product.  Look at Samsung.  How do you go from TVs and washing machines and no smart phones to #2 in the smart phone market?  A market in which RIM went from being #1 to foundering in. The point is that the cycle of business is topsy-turvy and cutthroat indeed, in tech more than any other sector, and we cannot definitively say which end of it Facebook will come out of.

More than likely, though, it will end up not with the Googles, Apples or Microsofts it considers its colleagues but in the trash heap with former "hot" tech companies that are now jokes because they had no sustainable business model or, in more concrete terms, something to ship that would bring in money.  Remember when fox bought Myspace for $800 million in 2005?  They were trying to unload it last year on some poor soul for $35 million.  Or who could forget the Vanity Fair headline "Is the Groupon the next Facebook?" after the company's value increased 2600% in a very short period of time.  The company is already in trouble since it has been discovered that people actually don't buy spa-salon packages and $79 Hotel weekends every day and the day they do isn't necessarily going to match the day they want to save three bucks doing it.  I'm sure the founder still got rich in the interim and I'm poor so hey, what the hell do I know?  But you can't look at all these facts and deny that before 2012, the VF headline could very well be ironically reversed: "Is Facebook the next Groupon?"


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