Groupon released their first earnings report, and to say the least, they underwhelmed. I had shared some of my thoughts about Groupon several months ago. But something new is afoot.
In the last week, we've seen Facebook file for an IPO. It's been talked about incessantly, and there are many interesting things within the filing which have caused people to begin sharing opinions about it. Since Facebook is in my industry, I find this discussion intriguing and certainly have my own point of view, particularly since I use Facebook.
Originally, I didn't want to join Facebook. Several friends emailed me invitations to join in 2007. I wouldn't accept. Finally, I joined just to stop the invitations. At first, what I found fascinated me. It's actually a terrific picture sharing facility. On the other hand, as Betty White famously said on Saturday Night Live about when she was younger, "We had PHONEBOOK...seeing pictures of people's vacations was a punishment."
Facebook also allowed me to reconnect with college friends, cousins, aunts and uncles who I previously had limited or no interaction with due to distance. I added new people, 'met' others, and before I knew it, I had a long list of 'friends'.
The problem was I barely knew some of these people. They aren't 'friends' at all, at least not in the traditional sense. I never met them, never spoke with them, and shared only Facebook with them. Somehow, we'd connected (Metcalfe's Law). Originally, I found this fun. After some time, I began to cull my 'friends', removing a large portion of them.
I've found that Facebook has kept me up to date with cultural themes, stories in sports and politics, and allowed me to share thoughts and views. It's sparked some good discussions with friends, though ignited flames with other people I don't know at all. This is one of the oddities of Facebook, it's a comment board on steroids.
For all this, Mark Zuckerberg has made a fortune at my expense. Good for him. Really. I have nothing against him making money by providing me with a form of entertainment and information. Particularly if it's information I willingly share.
At some point, I started to reevaluate my time on Facebook. I still like the picture sharing capabilities. Beyond that, I questioned its overall value.
For one thing, Facebook continues to collect information about you even after you sign off. Every 'Share' link on a news page allows them to collect data about you and what pages you visit, as well as logging when you're on your computer, and where you're accessing from. In fact, Nielsen has begun using Facebook data (actually one of Facebook's revenue streams) to provide a demographic view of internet users. In my industry, it's called Nielsen Online Campaign Ratings. Nielsen can pull Facebook data for advertisers to get a better idea about who is seeing their ads. They can do it whether you're signed on to Facebook or not, to see who is looking on an ad on any site. This is done without my permission, and is known as 'opt-out' marketing. I wasn't comfortable with this when I learned what they were doing.
It's not terrible, many other vendors do this, but it gave me pause about how much information is just 'out there' for anyone to see.
Another interesting point is how much Facebook makes from advertising. I don't think Facebook is a very good advertising tool, though clearly some people think so (nobody I've met in my industry thinks it really works all that well for larger firms). But it does find other ways to make advertising revenue, since advertising is its largest revenue driver. On the other hand, twelve percent of their income comes from a single source - Zynga, a game developer who is also went public recently. That is substantial exposure on the revenue side.
I mentioned I don't think Facebook is a good advertising tool, but it is good for building brand awareness. Large firms utilizing Facebook sometimes wonder what they get out of their buys, but they feel they have be in social media. For local businesses, it can provide some terrific exposure. It's very good for keeping local consumers updated and providing coupons or deals. Facebook can grow with this for some time, but eventually these are limited growth areas.
From my point of view, I think Facebook is a good short term stock play (if you can get in on it). But long term it faces significant battles and I don't think it's worth getting involved. Consider this - a far more valuable company, Google, is only up 27% over the last 5 years. That's a pretty good return, given market conditions. But Google does many more things than Facebook, and does them all extremely well. While I was not surprised by Google's recent 'miss', it should give any company pause to enter a market whose growth is slowing. In addition, Facebook is benefiting from the 'buzz' social media has generated. Many of their sales are self-service, people trying to take advantage of a hot new idea. This starts out well, but eventually costs climb.
In the long run, say 5 to 10 years, I can't see Facebook maintaining its position. Competitors are already growing (Google among them), and the novelty of social media has worn off or will soon enough. I'm grateful to Facebook for what it has provided me, and may continue to provide. But I don't see it being a part of my life forever. I think others feel this way, too.
I could be completely wrong. I don't think I am. I believe Facebook will be a good 5 year investment and after 10 years I'd be surprised if it's still the market leader. Then again, maybe that's why Zuckerberg is IPO'ing into a market like this - strike while the iron is hot.
