Jew World Order

On 19 August 2004, Google went public, selling $1.9 billion of stock and placing the value of the company at US$23 billion when trading started. Today, we’re talking about an imminent Facebook Initial Public Offering (IPO), in which, it’s predicted, Facebook will offer 10 per cent of the company for US$10 billion, placing the value of that enterprise at US$100 billion.

(Credit: James Martin/CNET)

Is Facebook really worth this much?

The economic answer is: if people buy the stock, then it is worth this much. But what will people be paying for? There are three big reasons why Facebook’s IPO could be worth so much more than Google’s initially was. Facebook really is that different. (Note: this story is not a financial analysis — we’ll have that when Facebook files its IPO paperwork.)

In Facebook’s unique combination, these three pillars make this company arguably more valuable than any other internet company has ever been.

1. Reach

At IPO time, Facebook will have over 800 million users. It should cross the billion mark in August. That’s one seventh of the world’s entire population. Moreover, Facebook claims that these are “active” users, and that over half of them use Facebook “in any given day”. This doesn’t mean that the majority of Facebook’s users are online every day, but it is a portrait of a large and engaged user base. The average user is highly connected to other users and entities. The average friend count: 130.

Google (not Google+) crossed the billion-user mark in 2011, but people use it very differently. They may rely on it, but they’re not as engaged. Google is a way station, a site you transit getting from query to destination. Compare that to Facebook’s second big reason:

2. Dwell

This is where Facebook really kills it. The average US user spends seven hours and 45 minutes on Facebook each month (just ask the Nielsen folks). Even YouTube doesn’t come close, with under two hours per month. Google overall is also under two hours a month.

That is a lot of attention, a lot of branding, a lot of games being played and a lot of information about user behaviour, connections and preferences being gathered.

There is one downside to running a site where people go to in order to connect with each other, and not just for raw information as on Google: they click less frequently on ads. But since they’re on the site for so much longer than on a search engine, the raw traffic being fed through to advertisers could, theoretically, balance out.

But the key point is this: Facebook works as a destination. More people go there than to almost any other site. And without question, they stay there.

3. Lock-in

Given the performance of social networks that have come before Facebook, like Friendster and MySpace, one might well expect that at this point, eight years after its launch as a Harvard dorm-room project, most users would be experiencing Facebook fatigue, and logging off in droves, as they have done on other networks that got huge.

But they’re not. In fact, Facebook is expanding its demographic reach. While growth among young users has slowed (but not gone negative), perhaps due to saturation, growth among adults over 50 is growing rapidly. (So says the Pew American Life Project.) Families are getting connected.

Facebook is becoming part of the fabric of modern life. Disconnecting from this network is not as easy as just moving to a different social platform (like Google+), because, if you move over, you’re moving, for the most part, alone. And that’s not what social networks are about. The more people (real connections) you are linked to on Facebook, the more difficult it is to leave. That’s why Facebook tries so hard (and succeeds) at getting people to connect with other users. Each friend is one more barb on the fish hook.

No other site has this tripod of strengths: massive reach, incredibly robust usage and fish-hooked switching costs. Other popular sites have weakness in one or more of these areas that keep them out of Facebook’s rare air, even if they’re otherwise strong businesses. Look at Groupon’s low switching costs, for example, or Twitter’s much shorter dwell times, or LinkedIn’s smaller network.

This tripod is what Facebook is resting on, and what it should be able to build on. It’s why the company is so valuable today.

But what about tomorrow?

It’s not a sure thing that the company will stay in this position forever, and it certainly won’t if Zuckerberg’s team lets its guard down after IPO. Threats to Facebook’s dominance include:

Advertiser support

People don’t go to Facebook to see ads, and advertisers know it (compared to a search engine, where ads can be not just relevant, but also desired). Ad performance is improving, which is extremely important to the company, since that’s Facebook’s main revenue stream.

The Zynga dance

We’ll see when the Facebook IPO filing appears, but it’s expected to be revealed that a large proportion of Facebook’s revenue comes from Zynga. Zynga’s CEO, Mark Pincus, must want to free the company from Facebook’s control, and, likewise, Facebook is far too reliant on this single-game platform for so much revenue. The alliance may not be sustainable.

Mobile support

Facebook has mobile apps, but they are not nearly as compelling as the web service (on the iPhone and Android, at least; the Windows Mobile app is different and better). There are better solutions for connecting with friends in specific circumstances on mobile devices (check-in apps, mobile-review apps and so on). No one app has either the general functionality or the reach of Facebook, but if any user trend could interrupt Facebook’s growth, it has to be the move of the modern society to mobile online communication.

Google

Google will not give up on Google+; not after fumbling with Buzz, Wave and Orkut, and not with Google knowing how valuable it is to own a database of people. Google can, and is, putting Google+ in front of nearly everyone. For that reason, the company is able to claim 90 million users. Engagement is not nearly at Facebook levels, and may never be, but Google has the resources, and the battle knowledge, to lay in a prolonged campaign against Facebook.

Privacy flaps

Just kidding! No matter how many and how much journalists, politicians and a tiny fraction of users complain, Facebook’s privacy flubs will not amount to much, as long as the company keeps changing its policies so frequently that nobody can keep up with what Facebook is actually sending to other users and advertisers. At least, in the US, that is. In other countries, especially EU countries with tougher privacy laws, Facebook could, possibly, get slowed down by privacy issues. But with Facebook’s resources, we’d put that as having only a small likelihood of derailing Facebook’s progress.

Stay tuned to see how the market perceives Facebook’s initial offering. The company is expected to file its S-1 paperwork to go public this week. The actual offering won’t be until a few months after that.

Via CNET