Esquire miss the point on Facebook stock valuation


I read this article on my Lufthansa flight from Singapore to Frankfurt. Esquire was one of the very few magazines available in English, so I had a flick through.

Naturally, I gravitated to the article about Facebook stock. I don’t claim to know what went on with the IPO really. Were there some technically issues? Was it massively over-valued? Did people just buy it because they’d seen The Social Network and wanted a slice of the action/pie/action pie (delete as applicable)?

The Esquire Article

The article is here. I actually don’t think it’s a bad article, but it seems to miss a fundamental point when it suggests that

Facebook is a $60 stock stuck in the body of a $30 stock. Eventually, quality will out. Like.

While the article ascertains that people aren’t going to stop using Facebook…

As long as we’re human, we’re going to crave a town square, and for 58 percent of the world (and growing), Facebook is it.

…it doesn’t explore the financials in terms of revenue creation. Furthermore, whilst discussing the future of Social Media on the Marketing Over Coffee podcast, it was implied that Facebook may face a MySpace issue in the future i.e. get superseded by a better social network and therefore people would stop using it. BTW, have you seen the new MySpace?

However, until something comes along which is crazy simple and enjoys mad high adoption, Facebook will evolve and remain popular. We’ll complain about every change, though we’ll get used to it and the cycle will continue creating an ever more personalised and relevant experience.

I’m actually surprised Google didn’t make something a little more customised, intuitive and personal. Maybe that’s what they were trying to achieve with Buzz or Wave (not Plus surely) but adoption was just too damn low.

No, Facebook usage is not the issue. The issue remains how to monetize the service.

Facebook Ads

While Facebook ads can be targeted, they are targeted based on what people say about themselves as opposed to their behaviour, which is how Google works. Everyone knows that people want to appear a certain way on Facebook, so amend their relationship status, ‘like’ things that they want to share their affinity with and write interests that they want to others to see. On Google, people search for things they want to know about and visit websites of genuine interest. Facebook might be better off just whacking Google Adsense all over the shop.

Furthermore, Google is providing paid for results for what people are actually searching for. People don’t go to Facebook to find anything other than stuff about their connections, whether they be friends, pages or groups. The ‘promotion’ option, allowing page admins to pay to promote updates to keep them in newsfeeds longer could work well, but then most engaged followers will already have information from these pages prominent in their newsfeeds, so will have sight of this important content. I’ve only used promoted posts a couple of times with limited success. We’ve received higher interaction from status updates featuring ‘Hit like if…’

Facebook has also made money from the ‘in platform’ games they have, such as Farmville, but I’m not sure if they provide a significant contribution to any strong strategic plan.

What would I do if I were Facebook?

Well, no one is ever going to pay to use Facebook (like LinkedIn keep trying to make me do for enhanced features). There is a hell of a lot of data that could be sold. More features for businesses, more support for app creation (their recent purchase of Wildfire would support this strategy) and easier integration with external sites to encourage visitors to remain within Facebook and propagate the idea that Facebook is a destination site, that’s probably where I’d start. But to think that the stock price should/will rise because Facebook’s popularity and audience size is a fallacy. Currently, I don’t see it moving any way but down.

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