

The Case for Facebook - JeromeMorrow
http://www.theatlantic.com/technology/archive/2012/05/the-case-for-facebook/257767?mrefid=twitter

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tokenadult
The interesting article kindly submitted here builds its argument on this
observation: "Yet Facebook is still the world's largest social media site with
more than 900 million users. And most importantly: Many of those people still
visit the site each and every day, regardless of grumbling from cynics or
short-term price fluctuations." The structure of the article's rationale for
being bullish on Facebook is all keyed to this. So I read the article
carefully to see if there would be any mention at all of AOL, the previous
company about which comparable claims were made. In the living memory of many
people who used and have now left AOL (like me), the author doesn't even bring
up AOL as an example. I'm sure that committed, loyal users who see their
friends every day on an online network can nonetheless choose to leave that
network--I've seen it done.

I agree with the author that Facebook's imposition of a "house style" on user
profile pages was a huge advantage of Facebook over MySpace. That spared
Facebook from being butt-ugly on most pages, and probably also reduces server
load at scale. That Facebook is international is also a strength of Facebook--
I have Facebook friends in several other countries, and I interact with them
now more than I ever have before since we went off to separate countries. But
to this day China is blocking Facebook, and other countries still have the
technical means to restrict use of Facebook.

But user count isn't the key issue for a business. Revenue and eventually
earnings (profits) are the key issues. All of my interactions on Facebook
don't monetize Facebook. Facebook is under governmental supervision both in
the United States and in the EU about how it uses user-supplied data to
monetize. I read Facebook pages with AdBlock and F. B. Purity installed--I
find Facebook disgusting when I view it on other computers. I can't think of
any way that Facebook can monetize my share of the load on its servers without
turning me off, and many of my friends think the same way. We are happy to
free-ride on the gullibility of Facebook's investors (what consumer doesn't
like a good deal?) but if Facebook seriously figures out how to monetize its
full user base in a way that provides positive return on investment for
Facebook's investors, that is likely to be through corporate behavior that
turns off Facebook's users and drives them away. It's been done before, and I
expect it will happen again.

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greenyoda
I don't buy the article's claim that Facebook is a "natural monopoly". A
natural monopoly would be something like an electric utility, which would be
very hard to compete with since you'd have to build out a very expensive
alternate network of power lines before you could even start selling.

So let's look at what business Facebook is in and whether they have a monopoly
in that market. Facebook is not in the business of running a social network --
most of their revenue comes from selling ads. Their customers are advertisers,
not their users. Their competitor is not really the puny Google Plus, it's the
mighty Google AdWords. And Google is currently beating them in that market, so
no monopoly there.

Number of minutes spent on the site per month is the wrong metric to measure
Facebook's success by. What really matters in both Facebook's and Google's
business models is ad revenue per dollar spent on operations.

~~~
saraid216
(Disclaimer: I first found out about the concept of natural monopoly in this
article, so when I say I am not an expert, I mean I have no clue whatsoever.)

Well, a natural monopoly doesn't mean that it _is_ a monopoly, right? Just
that it's _most efficient_ as a monopoly. It's not impossible to build out an
alternate network of power lines; it's just prohibitively difficult. Maybe
it'd be more correct to say that it's Facebook's specific targeting mechanism
of ad delivery that it has a monopoly on?

For instance, I imagine a cellular network is a natural monopoly by the exact
same reasoning you say that an electric utility is one. Except... neither
Verizon nor AT&T nor whatever actually has such thorough market domination: in
fact, their competition is partly on the very pervasiveness of that network.

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poink
"One in every five page views on the Internet is a Facebook page. If you think
the Internet is valuable, then you implicitly think Facebook is valuable,
too."

Holy logical fallacy, Batman.

~~~
drcube
"If you think the Internet is valuable, then you implicitly think porn is
valuable, too".

Porn has to be at least 20% of the Internet, right?

~~~
Porn_Monopolies
I'd go with 18.23%, you're clearly ignoring pages on ferrets.

An oldie-but-goodie:

[http://instapaperstories.tumblr.com/post/3069345131/the-
geek...](http://instapaperstories.tumblr.com/post/3069345131/the-geek-kings-
of-smut)

What's actually interesting about Porn on the internet, is the way it has
dealt with a) copyright issues and b) free / amateur porn.

In both cases, seeing falling revenue from P2P sites, there's been some
amazingly good work on ad revenue, and ironically, a drive towards monopolies
of content ~ where the content makers of 'paid' porn are actually supplying
the "free" sites with content directly to drive ad revenue. And in many cases
[b]own their supposed "adversaries"[/b] who are supplying "free porn".

If you want a short-hand way to think about it: it's the same deal as Pepsi or
Coke. Multiple "competing" brands / flavours, all under the same umbrella.

Then again, there's also (can't find the link atm) the remarkable lengths free
porn sites harvest fraudulent ad revenue off 'mushrooming' innocent linked
sites tied to the page views.

~In this field, I often think that Porn has been more driven / canny about
financial revenue than the MSM generators.

(Apologies if this is all known knowns & for the lack of a link there)

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cwe
I would just like to thank the OP and the Atlantic for including a tl;dr
section, is this becoming standard practice in our 140 character world?

~~~
gringomorcego
I think we've entered the world of "state your thesis and conclusion in simple
words"

If you can't give a good gist about something in less than a paragraph, you
don't know what you're talking about.

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adventureful
The problem with the Facebook stock, is its valuation in relation to growth
prospects / concerns. It's as simple as that.

Facebook maxed out the money they could raise on the IPO, and the price fell
afterward accordingly. It's better for the company long term that they did
that.

It's a long race they're in.

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planetguy
A hundred billion was way too much. As of right now, though, it's valued at
$57.66 billion ($27 per share) and I'm starting to think it may be worth
buying while the sentiment on it remains so negative.

Maybe not $27, maybe $25, or $20... there's gotta be _some_ sort of floor on
the value though.

~~~
jquery
Somewhere between $8 and $12 if you're a value investor.

~~~
Retric
Umm, at 6$ a share I would call it expense at 15P/E, but probably worth it. At
12$ and a 30P/E your expecting 4x+ earnings within 5 years and continuing
growth after that or it's not worth it and IMO I just down't see FB getting
there.

PS: It takes 32% annual growth for 5 years to be worth 4x in five years. FB is
not expecting 32% growth next year and large companies rarely see sustained
double digit growth let alone increasing sustained double digit growth. Now
you can make the greater fool argument, but that's not value investing and FB
has been on the market for a while even if it was not a 'publicly' traded
company.

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h84ru3a
This author sounds a little naive re: technology.

Perhaps he should examine some of the Facebook publicly available scans that
have been done by "academic researchers", e.g., in South Korea. It is not
rocket science to crawl Facebook.

Facebook's data is accessible. As is any website's back-end database. You are
kidding yourself if like the author you think you can put something like
Facebook on the public internet and have it be "private". If people with the
skills -- and there are plenty of them; surprise, they don't all work at
Facebbok -- put in the effort they can get the data. All they need is a
reason/motivation to do so.

But let's have some more embarassing "tech journalism" (uninformed
pontification) from a once respected journal. Put more nails in the coffin of
the notion of "professional journalism".

