First of all, David: The word is VALUATION, not evaluation. KTHX.
Secondly, EVERY SINGLE COMPANY IN THE WORLD that has shares that trade is valued by taking the last share traded and multiplying by the number of shares outstanding. It's just the DEFINITION of valuation. It's TAUTOLOGICAL.
The whole section "Minority investment evaluations aren’t real" is so economically bizarre and incorrect that I don't even know where to start. It's like you wrote a blog post arguing that it is incorrect to refer to a 5' tall boy as 5' tall because he's often sitting down. Every single day every single public company in the world is valued by the last share traded, usually for a tiny fraction of the company.
Finally, to the main point. Facebook has certainly figured out how to make money off of 500,000,000 users. And as they optimize, they will make a lot more money. When they figure out how to make another DIME off of every user, they will instantly be making another $50,000,000 a year... in pure profit. How much profit will 37signals make if you figure out how to make another dime off of every customer? Eh David? Facebook works on the theory that when you have a lot of people, you don't have to make as much per person, because the amount of money you make is the number of customers times the amount of money you make off of each one. Again, that pesky multiplication.
It's weird, it's like in Chicago they don't have multiplication or something.
2. Publicly traded companies have instant liquidity on many more shares, which makes using "last share sold" an meaningful metric.
3. When only 3% of the money a company is supposedly worth has been moved around, it's a poor indicator of what the other 97% would go for.
4. They haven't figured out how to make much profit yet. And it's still questionable whether they will. MySpace supposedly also just needed to turn on the faucet, but apparently the water ran out before they got to it.
5. Oh, and New York smells. (take that!)
3. Also not correct. When entire companies are bought and sold that had a previous market in the shares, the price for the entire company is usually a PREMIUM ON the the market valuation. "PREMIUM ON" means MORE THAN. Somewhere in Chicago, I understand that there is one market of some sort, I think they trade corn and pig bellies, surely SOMEONE there can explain it to you...
4. Also, just not true. They are very profitable and their profit is almost certainly growing at a rate that will make their valuation reasonable.
3. Again, these premiums are based on outstanding shares traded under the transparency of the public stock market. See Secondary Suckers for a nice take on the perils of the secondary market: http://www.homethinking.com/brontemedia/2010/09/17/secondary...
4. Do you have their P&L handy to back that up? If the valuation was so wonderful and they were raking in the profits, then taking series E funding three months ago doesn't make much sense.
You may not agree on the worth of the album or of the shares, and nobody is forcing you to buy either one. That some people do consider it a good price is enough to result in a market price for both, on the basis of which many decisions are made.
And yes, this happens now and then for ordinary, exchange-traded companies. Usually, it results in the exchange suspending trading for the company for a bit. Sometimes, it requires someone to call B.S. In an ordinary, regulated market, one or the other of those actions restores sense, gets the price back somewhere within shouting distance of reasonable.
Not sure what phenomenon you're referring to in your second paragraph.
Presumably subprime mortgage backed securities are the exception that proves the rule...
For instance - Tonight we got an exception and are allowed to stay out till 11pm, would imply that there exists a rule that forbids them staying out that late. Hence the exception proves the rule.
The spread reflects the willingness of firms to compete as market makers. More firms competing means a smaller spread.
The spread also reflects the risk associated with the market maker holding inventory. The more perceived risk, the bigger the spread.
That's pretty close to the 0.000000001% that put our $100B valuation on paper: http://37signals.com/svn/posts/1941-press-release-37signals-...
But hey, you better snatch these shares up quickly. It's rare that you get a chance to a clear shot at a company where "profit is almost certainly growing at a rate that will make their valuation reasonable". How much can I get you down for, Joel?
Valuing Facebook just by the market price on Sharespost is like predicting the outcome of an election when only 1% of the votes have been counted. Maybe those votes are a representative sampling, maybe not.
I'm inclined to think not, because you have to be an accredited investor, ie already wealthy, to buy pre-IPO shares. Facebook's investors are there for the potential upside and are more comfortable with risk than Joe Blow saving for retirement or his kid's college education.
So Sharespost prices will be higher because (PROB_FB_DIES * NEG_UTILITY_FORME_IF_IT_DOES) will be less negative for millionaires than for the middle-class people or conservative mutual fund managers who will buy most of Facebook's equity when the company goes public.
You "only" need $1 million in net assets (minus the house due to recent law I believe) to be an accredited investor. I would really be surprised if Joel didn't have at least that much.
I think the simple summary of your point is this: Things are worth what people are willing to pay for them, not what other people think they should be willing to pay for them.
Facebook is worth $26 billion. That doesn't mean that buying it at a valuation of $26 billion is a good investment. Worth and my estimation of what it will be worth in the future two are different things.
I agree with this, but there is a difference between the market being willing to pay $26 billion for a company, and minority investors being willing to pay $26 billion/0.03. Only the former establishes the actual* value.
A decent estimate would include the expected future worth, whether it is based on expert analysis or a market's expectations. I don't think any estimate here could be categorized as what "it will be worth in the future".
Anyway, the primary reason that your point 3 is true is because of basic supply and demand. It is harder to buy all the shares than to buy a few. When it's perceived there's a very small number of shares available--I don't know if this is true, but it does seem like investors are clamoring to invest in Facebook--share price will be higher than if that were not the case. In particular, perceived scarcity can share prices artificially high. The idea of getting a slice of the pie before someone else does was a big factor in the dot-com bubble, for instance.
When a VC invests in a company, they're looking for a big exit. Essentially, they're trying to predict how much the company might IPO or get acquired for. A public investor is trying to predict the rise in future profits of the company. The difference in motivation matters when you consider a hypothetical.
Suppose the company is guaranteed to have stagnant or falling profits. Does that discourage the VC? Not necessarily. They don't care about whether the company can make money. They care about whether they can keep building perceived value in the eyes of anyone who would want to acquire. A public investor, however, would not put their money in that company (at least not for long).
Therefore, I think David's main point is sound - VC's are more likely to over-value your company than the market is. We also know this to be true because of what happened in the early 2000's.
Wily investors always look for meaningful volumes before taking big jumps/declines in share prices seriously.
One of the easiest ways to ramp a stock (apart from getting your journalist buddy to write a puff piece) is to continually lift the offer for small volumes.
In the early days of computerized trading it was quite common for even quite liquid stocks to be suspended limit up/down because of programming bugs.
But by Joel's logic, the market has 'spoken' and these companies are now worth 10% more/less than 30 seconds prior, when in fact all that has happened is some faulty code just ripped through the book on minimal volumes.
The point is that 'true' valuations are validated by significant volumes. Hence Google's valuation is real. Depending on your viewpoint, the size of the recent transactions in FB may or may not be material - and I think this is the point that David was making.
You need some amount of liquidity to make a meaningful valuation. Lack of liquidity leads to price volatility. Think May 6 flash crash.
Oh, and New York smells. (take that!)
Two of my heroes dragging discourse on hacker news into the toilet. What's the world coming to?
Is the problem that they're sitting there in a city without any other Internet industry, stewing in their own witty ideas, listening only to the adoring comments they get from the groupies?
.. is a often genuine criticism of 37s here on HN. Probably part of the reason the joke was missed.
Warning: Prolonged exposure to HN comment sections may blunt your sense of humor, too.
Do they have some history or it's just impulsive?
On this one, I am with David. Joel pretty much negates his point about using something battle tested and mainstream in the end when he mentions using some proprietary language for his product, which translates to a couple of mainstream languages. I don't really see the point of cross-compiling to multiple languages. The work and time invested in maintaining the proprietary language can be better invested on other critical activities. If language interoperability is an issue, thrift or message queues is there to the rescue.
Why he would use some fancy stuff when he himself is advocating using mainstream stuff is beyond me. I sure would be betting on ruby being more robust than whatever he is using in-house (preposterous claim; I have no ideas what they have in-house)
IMO the only valid complain about Ruby was lack of good unicode support at the time post was written.
I do remember some post from 37 signals commenting about Joel's taking investment; not sure if it was David or someone else though.
A very thin line divides frank and honest speech and rude and arrogant statements. Most of the internet celebs sit on the fence and cross it every now and then - Linus Torvalds (Open BSD devs are a bunch of masturbating monkeys), Zed Shaw(Rails is a ghetto) etc etc.
That being said, there always is a take-away as these people are one of the most hardworking and talented people in the industry but the sad thing is it makes it difficult for people not familiar with their style to neglect the firework and just consume the good parts(not that it would matter to any of them).
He's a New Yorker, it's in his DNA.
HackerNews: battlebots for geeks who can't build an ashtray without a makerbot
I was also surprised that it didn't really address the question of whether or not you (37S, dhh) are "stewing in their own witty ideas, listening only to the adoring comments they get from the groupies"
Do you have any thoughts on the "bubble-ness" of Chicago. Think it's a totally invalid point?
What's laughable is Joel's implicit assumption that the majority of 37s clients are, apparently, Chicagoans. How charmingly pre-internet of him.
In the real world, markets cannot be absolutely efficient or wholly
inefficient. It might be reasonable to see markets as essentially a
mixture of both, wherein daily decisions and events cannot always be
reflected immediately into a market. If all participants were to believe
that the market is efficient, no one would seek extraordinary profits,
which is the force that keeps the wheels of the market turning.
In the age of information technology (IT), however, markets all over the
world are gaining greater efficiency. IT allows for a more effective,
faster means to disseminate information, and electronic trading allows
for prices to adjust more quickly to news entering the market. However,
while the pace at which we receive information and make transactions
quickens, IT also restricts the time it takes to verify the information
used to make a trade. Thus, IT may inadvertently result in less
efficiency if the quality of the information we use no longer allows us
to make profit-generating decisions.
Price is simply a function of supply and demand. It's not customary to use a fire sale price as the sole basis of a company's valuation.
Nonetheless, Joel's post is quite funny.
Also, "meanningful" is an excellent example of Muphry's Law.
Indeed. And Pets.com was worth $100 million on the day of its IPO. And tulip bulbs were worth more than a man's annual salary in 1637. And that house down the street was worth a million dollars last year. Someone paid for those, too.
You don't have to have a different definition of "valuation" to see that a small sample of the most eager investors in the private market doesn't guarantee a reliable estimate of value.
Company valuations are messier than tulip bulb valuations though. With tulip bulb valuations you are saying that since someone will pay x the bulb is valued at x. With company valuations you are saying that since someone will buy 1/n of the company for x then the company is worth n*x. This makes sense because people really want a piece of facebook and valuations do a great job of setting that price. But the price is also used to determine how much the entire company will go for, which is how the number is often thought of.
As long as the valuation goes up and you have the opportunity to sell for a net gain then it is a good investment. DHH's thoughts here are important beacause they call attention to a valuation bubble. I think the main controversy lies in his creative use of words.
Not "someone", but THE MARKET ... when you buy a piece of Facebook, but won't be able to sell at least at the same price, then you're the loser ;)
When multiple losers gather and start buying stupid shit with no value to THE MARKET, that's called a BUBBLE, that will burst sooner or later.
The trick for estimating if "the valuation goes up" is to see if that company actually provides value (i.e. actual profits, since that's the only goal of a company) ... and in that light, DHH's opinion makes a lot of sense.
This is unexamined Econ 101 dogma. See the other posts on intrinsic value.
Everyone who invests should know that market value does not necessarily predict intrinsic value, and it becomes more problematic when there's illiquidity, and when only a small fraction of the company is being bought and sold. These are basics, going back to Ben Graham's famous book on value investing, and probably much further back than that.
Even if liquidity and size didn't matter, it's still a basic error to go by last share traded and claim that that represents the actual value of the company.
Is the problem that they're sitting there in a city
without any other Internet industry
Their linkbait really grates on me as well (though I happen to agree with this post's conclusion, if not the methods), but I think it's pretty unfair to say that they misunderstand all the basics of business. They seem to be doing pretty well for a shop their size. In fact, I'd say there's a good chance they're doing better than Fog Creek. Maybe misunderstanding the absolute perversion of what too often passes for "business basics" in Silicon Valley isn't such a bad thing.
First of all, he's from Denmark – he just lives in Chicago. Secondly, ever heard of a little startup called Groupon? They're from Chicago and I'm assuming they have a few people there that excel at multiplication.
The location of 37signals has nothing to do with it, and you're clouding an otherwise clear and well articulated set of points with the asinine notion of "no one outside the valley understand business".
This would have been a valid argument 2 years ago if Facebook was trading at this valuation, however Facebook has a reasonable valuation given their rapid revenue growth. They may surpass $200 million this year and their user base is still about to double (yes, to beyond 1 billion users).
They haven't even begun to open up the revenue faucet. 37signals should stick to providing advice to "lean startups" who want to build small businesses.
The fact that they have gotten to the point where other companies are able to build majorly successful (Zynga) businesses based on their platform, and the fact that they have become ubiquitous with many business' marketing and online presence speaks for its self.
The fact that the total amount of time spent online is greater for those on Facebook than Google (including Youtube) is also important. http://news.cnet.com/8301-1023_3-20016046-93.html
But what is more important is Facebook's pursuit of pushing the envelope and being willing to innovate and lead as the online landscape changes.
The posts above which mentions that people were saying the same thing about MySpace having the user base and then not being able to monetize is like comparing apples to rotten tomatoes. MySpace was not a technology company, Facebook is. MySpace was primarily a media company with little to offer technologically (see: http://paulgraham.com/yahoo.html), Facebook is building a social web that has deep horizontal integration with the Social Graph Protocol, mobile communication, and is actively trying to optimize it's infrastructure for both scalability and user experience. Look as far back to their decision to go with AJAX and not base everything strictly on page loads (as MySpace did), or as recent as their open sourced internal projects... (I don't think MySpace ever worked on any HipHop PHP or Cassandra)
Facebook is in it with the right mindset, to be the leader and game changer in the "social web," and with both the value and quantity of data they are constantly amassing I wouldn't be surprised to see them on par with Google in a few years.
Also, as they grow they can continue to optimize and decrease costs on their end... I'd say they have both a big faucet to open and probably a few leaks they could plug as well, the combination of which makes for a large valuation to be expected.
It's always easier to look at something we don't quite fully understand from the outside (not many people understood the true value of those little text ads on Google until later) and then make blanket assumptions on valuations based on other companies that were inflated but not even on the same playing field as the company being discussed.
How will Facebook change its platform to convert its hundreds of millions of users, who signed up for a free party, into billions of dollars per year without spoiling the party? No one likes getting invited to a party with their friends only to find that the beer isn't free after 11:30, or worse, they've been tricked into attending an MLM meeting. If Facebook could convert eyeballs to dollars the way Google can, there was no reason not to do so when they had 50 million users, or 100 million, or 200 million... It hasn't been done, though, because it would spoil the party and stop that lovely flow of VC money.
I am just gobsmacked that, within just a few years of the US housing market bubble popping and the financial empires getting caught with their pants down, you would continue to support the speculators' fantasy of pre-IPO tech valuations. These types of valuations aren't just irresponsible or insane, they're scams! The consumers have no money or credit left, so the easy money is going to come from gullible investors.
Also, Chicago has lots of smart people, and I agree with you that FB is well positioned to make lots of money.
They've massively invested in infrastructure, which has certainly lowered profits. They could very well start benefiting from this as soon as next year.
Without information, though, it's all speculation.
Right - that's the point. The valuations are not based on actual profits or profit potentials but rather on speculation/hype, which means bubble, and when a bubble bursts, it ends up hurting the entire community.
Obviously, startup valuation is not a science. BUT when valuations are based on wild projections (such as FB will be be more profitable than Google), then someone must call it out.
It isn't 66$ per user. It is 33billion/expected number of total users over the lifetime of facebook.
So if you throw in rough estimates of 2 billion facebook users and give them a decade of profiting from an average user...3$ per year per user.
Does anybody else see a problem in that?
A company's valuation can certainly take into account growth potential, but when it assumes massive growth and leaves no margin bad things happen. Risk is much higher since any faltering of the company would need to be adjusted for in stock price almost instantly. If a normal company sees slower than expected growth the stock may fall a little. If an overenthusiatically future valued company sees slower than expected growth the stock may tumble by huge margins (because it's tied to the company's size 10 years from now, not today). Worse yet, if there's no margin remaining in stock price it'll be forced to remain stagnant for a very long time. This is bad for investors and bad for the company (because the use of stock as employee compensation is less potent).
Facebook may well achieve the numbers outlined above. But let's not kid ourselves. People were doing the same back of the envelope calculations for MySpace when it first started to get big. I see nothing wrong with a judicious use of common sense and caution in this case.
Also you can't link the 33billion to expected. 33billion is their "valuation" now with 500M active users. There's a certain expectation that your valuation should go up as users increase.
Personally I think the per-user deal is kind of a red-herring. Revenues and Profits are the only things that really matter. Users are just a one (good) dataset for estimating growth - but hardly the only one.
Right. Because the Chinese and Indian Peasantry is definitely going to be on FB.
It's not like facebook could invent a yearly membership fee or start selling t-shirts or such...
Well, they could, but I doubt more than ~20% of their audience would actually pay.
I always used to think I was a 'leech' user of TripAdvisor, until I worked there.
If so, they've gotten a dime from you.
3 ads per page, each ad selling at a $0.10 CPM.
But CPC, well I've never clicked on an ad on Facebook in my entire life.
Otherwise, even google would be out of business.
You literally type into Google "I have this problem" and get a bunch of ads solving that problem. It is practically the holy grail of advertising. Now consider that it is a catch all for personal and corporate questions, it is a cash cow. It is perfectly acceptable to google something at your job, click on a link, and buy a $15,000 system.
Facebook might know a lot about you, but they don't know what you are looking for at any given moment. Add on top that most people are spending their time on personal relationships, and it isn't the same even if they get more impressions. I can't log into Facebook from work and say "who has 5" diameter pipe?" and expect a response, but if I google that I find a vendor and place a multi thousand dollar order.
Also the market on Facebook is somewhat inverted. The "best" customers are generally on their the least. The most frequent people are college students - mostly broke at that. If you aren't advertising clothes, personal electronics, or local bars I don't see the draw.
Google ads work when there is so-called "purchase intent": I know I want a new waffle maker, so I search for it.
Facebook ads work when there is demographic correlation: I just got engaged, and I might not know that I now need a waffle maker, but a Facebook ad can target me and tell me that I should be adding a waffle maker to my wedding registry.
Different kids of targeting, both extremely powerful.
And seriously. Waffle maker. It's the gift that keeps on giving.
...and many other Chicago-based internet companies
But what I think the 37signals post is addressing is how directly tied this valuation is (or isn't) to the company's intrinsic value. price-to-earnings, a guess at its margins, durable competitive advantage etc etc. In that sense, is facebook truely worth $33B? That's a different question than what's its current valuation. Its subjective, to be sure, but its still fundamentally different.
Its a private company. I doubt many outside the company know its financials. Information scarcity leads to pricing inefficiency. For all we know, speculators might be driving up the price to cash out sooner.
Another point I mentioned before: Everyone is incentivised to see the valuations go higher. The VC's, employees with shares, the founding team, etc. They can cherry pick talent from the competition with such valuations. Since I don't think you can short SecondMarket stock, there's no way to bring negative information into the market to keep prices rational.
To your last point, facebook has certainly figured out how to make money off its current users. But it has radically changed the underlying user-conventions to get there. It started out as a college-yearbook and photo storing site with no profit-motive. In order to become profitable, its iterated on that simple concept with such a pace that the majority of users have yet to catch on with how things have changed beyond photosharing and posting on friends walls. The majority of people have no idea what is being tracked. For them to squeeze out further revenue, it follows that more fundamental changes must take place to get there.
Whats one thing that could absolutely destroy facebook? Overnight? If they started making public which users were viewing which profiles, and with what frequency. That could kill it pretty easily, I think. Of course, they would never do it, but I think if a terrible scandal or crime occurs, involving sensitive user data, and people are compromised in such a manner, that would be a problem for facebook.A billion dollar company shouldn't be so easy to kill.
> "The city posted a sign," means that an employee of the local government (but not the geographic location or all of its residents) posted a sign
I think you are talking past one another. He's saying that he does not think that their valuation is merited. You are saying that his assertion makes no sense because valuation is, by it's nature, defined by the current trading price.
You are I think technically correct, but the market isn't always perfect in judging the value of something, and I think he is saying that this is one of those cases.
"The whole section "Minority investment evaluations aren’t real" is so economically bizarre and incorrect that I don't even know where to start."
I don't think that's so bizarre to say. If there is huge demand for something and only a very very limited supply, then doesn't it stand to reason that price will go up more than it would have otherwise if there was more supply?
Facebook is not (yet) public, which is a massive factor relative to the calculation of its book valuation. Presumably, at least on the surface, all of this facebook hype of late would indicate that what used to be a closely-held entity is quickly becoming ripe for the IPO market. What the actual valuation is (or will be) cannot be determined until the free market goes to work on it.
But then again, speculation, anticipation, and fear . . . these have all been attributed to major market fluctuations, crashes, overnight millionaires . . .
Assume they want to continue growing. Growing both the number of total users and the number of places they grab the users' attention (mobile is the next natural play). Of course they would continue raising money and not worry about profit margins right now as they are still driving money back into the company's growth.
There are two factors that influence your 'multiplier theory' given their advertising model. Number of users and the amount of attention you have from those users. They still have a lot of potential upward growth in both areas.
If facebook made a billionish dollars this year on ad revenue - they could double it with twice as many users. Double it again with twice as much user attention from being a core part of the mobile web. They are still growing their ad platform, so that is another multiplier.
Remember a sucker is born every min and Elevation Partners has been a sucker over and over in many investments. Would you spend $6 per dollar of Apple revenue or $25 for a dollar of Facebook? Case closed.
Disregarding the technical usage of the word valuation in investing, I see three ways of interpreting the terms in the argument here. The price of Facebook is 33B, simply extrapolating from the price of tiny percentages of Facebook.
The value is related to the price people are willing to pay, but is actually unknown and only exists as a prediction of future cash flows.
The worth is a more nebulous concept and related to how much Facebook improves the world.
It seems like spolsky is talking about the price, and dhh is talking about the value, and making illusions to the worth.
-The last executed price times shares outstanding is market cap. Valuation is dcf or guideline; there's a big difference between capitalization and valuation.
-Sharespost can not be considered liquid as all of its securities are governed purely by regulation D and are by definition on hard to borrow
-Facebook will not continue its current exponential rate of revenue growth for the standard 5 year assumption DCF
(jk, but maybe not)
Its most avid core user base will graduate with their faggy liberal arts degrees, find out they can't earn for shit, advertising revenues will peak and decline, at which point Facebook will file a timely SEC S-1, followed by a record oversubscribed ipo mostly bought by parent(sponsors) of said faggy liberal arts graduates, then get basket shorted down to 50% of offering price. IB, instl. trading desks, and VC will already have gotten rich long before this; everyone else loses. Same deal with carbon/ECX emissions futures.
-NY owns Chicago; Chicago is the guy on the merc floor shouting hundreds of open outcry bids while one trading desk at 200 west st. takes every bet against him using one single macro on Rediplus. (jk, respect to all veteran floor traders)
-I'm sure everyone will decide their bets based on their own risk-reward/due diligence anyways. Nothing we say to each other will have a huge effect; in the end, the bids and offers we provide will do all the talking for us. That's why the market exists so let the games begin.
>It's like you wrote a blog post arguing that it is >incorrect to refer to a 5' tall boy as 5' tall because >he's often sitting down.
It's not like that at all. It's more like comparing a 5' tall boy with a 5' tall light pole and deciding that valuation is based on height alone.
>It's weird, it's like in Chicago they don't have multiplication or something.
Yeah, good point.
So you would agree with the valuation of Slide or Ning a few years ago? Maybe. Would you now? No. Valuation of private companies is not a science but an art. That's startup 101 stuff. Do you really call Sharepost a market most investors would call credible? Please.
Perhaps a little more humble thoughtfulness, rather than indignant ignorance, would do you some good.
This sounds like a bunch of privileged people arguing about something that that doesn't make a damn bit of difference to what's really needed in this world.
I thought I was going to learn something. But now I just feel a little ashamed that I read any of it all.
As opposed to being located in a circle-jerk of similar minded companies and VCs, responsible for the first internet boom?
"The whole section "Minority investment evaluations aren’t real" is so economically bizarre and incorrect that I don't even know where to start. It's like you wrote a blog post arguing that it is incorrect to refer to a 5' tall boy as 5' tall because he's often sitting down."
If he's ALWAYS sitting down, then it's accurate to argue he's not really 5' tall ―not for any practical purpose, that is.
But not only "minority valuations" are not real, but majority valuations are not real either. Valuations are based on guesses, feelings, estimations and some facts thrown in for good measure. A declaration of fact, they are not. Some time they are even complete BS.
"Finally, to the main point. Facebook has certainly figured out how to make money off of 500,000,000 users. And as they optimize, they will make a lot more money. When they figure out how to make another DIME off of every user, they will instantly be making another $50,000,000 a year... in pure profit. How much profit will 37signals make if you figure out how to make another dime off of every customer? Eh David?"
And how useful is David's products to customers, eh Joel? How possible it is that they jump ship en masse when something trendier comes along, compared to Facebook? That is, which business is based on a solid offering, and which on virtual smoke and manure?
Yahoo could once milk 500,000,000 users too. Nowadays, not so much.
"Facebook works on the theory that when you have a lot of people, you don't have to make as much per person, because the amount of money you make is the number of customers times the amount of money you make off of each one. Again, that pesky multiplication."
Yes, many a business failure was based on that theory. It's the old, "we lose money on each product, but we'll make it up on volume" idea, adjusted as "we make a tiny fraction of money from each user, providing no real benefit or substance, and he can jump ship tomorrow like he did on several of our predecessors, from Frienster to MySpace, but we'll make it up on volume".
"It's weird, it's like in Chicago they don't have multiplication or something."
Most likely it's like NY has no manners...
But the real question is, should someone even partially responsible for Visual Basic even be allowed to talk about tech?