

Social networking will become ubiquitous, but that doesn't mean it's a business. - parker
http://www.economist.com/business/displaystory.cfm?story_id=10880936

======
parker
A rare article on the business of the Internet from the best news magazine on
the planet...

------
thinkcomp
I don't think the predictions are vague at all. Businesses that don't profit
don't stay in business.

Facebook and MySpace are both examples of companies (or corporate divisions in
the latter case), as best I can tell, that are surviving only thanks to
massive quantities of outside investment. If the investments were made with a
realistic expectation of return, it would be one thing, but given the economic
realities of social networking that this article points out (and not for the
first time), these investments are looking more like gross market distortions
than anything else.

~~~
falsestprophet
Facebook and MySpace are great businesses. Sure, valuing Facebook at $15
billion dollars is preposterous, but that doesn't mean it can't make some
money; that doesn't mean it can't make more than enough money.

~~~
aston
MySpace and Facebook _aren't_ making more than enough money. That's why FIM
doesn't break out MySpace numbers and why Facebook raised a huge round.
Business rolling in profit don't need anybody else's money.

~~~
falsestprophet
If you don't think Myspace and Facebook could be profitable, then I don't know
why you are in this business.

They are not profitable now because they are investing in growth (which, like
any investment, is a gamble). They could scale down their staff and achieve a
very good return on capital.

~~~
parker
I think this article's sentiments is just to point out how tech business that
are given highly speculative valuations rarely pan out.

Think about Facebook's implied value of $15 Billion. A traditional company is
valued at about 2 or 3 times annual revenue, or perhaps 8 to 10 times annual
EBITDA. This would require Facebook to mature with revenues around $5 Billion
a year, and EBITDA of $1.5 Billion. Their speculated revenue of $50-$60
Million last year is about 1% of that mature target.

This article is saying that these tech companies may have indirect benefits
that are hard to quantify, their core value continues to be questionable.

~~~
falsestprophet
Facebook is rapidly growing abroad. I think the $15 billion dollar valuation
is silly, but Facebook is not a textiles company. Optimism is not
unreasonable, however it is -- of course -- speculative.

------
tim2
Took me a while to figure this out. Press release in disguise.

I'd not be so harsh if the predictions weren't so vague.

~~~
jlam
I don't know how you could say that. If anything, the article calls for the
demise of walled gardens:

“Early services, such as CompuServe, Prodigy or AOL, began as ‘walled gardens’
before they opened up to become websites. The early e-mail services could send
messages only within their own walls (rather as Facebook's messaging does
today). Instant-messaging, too, started closed, but is gradually opening up.
In social networking, this evolution is just beginning.

“‘E-mail…is the most important social network’… because the extended inbox
contains invaluable and dynamically updated information about human
connections.”

Without pressure to make it a business, e mail “can remain intimate and
discreet. Facebook has an economic incentive to publish ever more data about
its users…but [traditional e mail] can let users minimise what they share.”

~~~
tim2
Still just vague analogies. It's not that hard to give a more concrete example
of what's possible. Why don't people do this? Because you'd see that this
doesn't really provide anything compelling at all.

