Posts Tagged ‘facebook’

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Time was when 2.7 billion seemed like quite a lot of people. That is how many of us are on the internet. But hold on, if the population of the world is around 7.1 billion, what about the remaining 4.4 billion of us? Never fear, Facebook’s founder Mark Zuckerberg has a plan.

Actually, according to the Facebook press release, the plan is to get another five billion people online. It is not clear how Zuckerberg will manage this, given that – according to the maths expressed above – there are only 4.4 billion people on this planet who are not online, and some of them are babies, but hey this Mark Zuckerberg. He is very clever. Maybe he is including family pets or Martians in his projections. More likely he is projecting growth in the population into his targets.

Then again, it is not just Zuckerberg who is at it. He has set up a company called internet.org, which Facebook describes as “a global partnership with the goal of making internet access available to the next 5 billion people.” In addition to Facebook, Ericsson, MediaTek, Nokia, Opera, Qualcomm and Samsung are all signed up to the project.

Some are cynical, and say Zuckerberg is only doing this because he wants more users for Facebook. But so what if that is the case.

Sometimes monopolies can be a good thing. A social media tool such as Facebook is a natural monopoly. It just won’t work as well if some of the people you want to connect with are on a rival platform.

Facebook won’t last forever. History tells us that dominant businesses lose their dominance as technology changes. It is called innovators’ dilemma. Kodak has been a recent victim. It looks as though Microsoft may well be. Facebook will be one day.

But just imagine for one moment what it will be like if the world – that’s the whole world, or at least the human bit of the world, let’s exclude the animal kingdom – was online at the same time, logged on using say 5G, giving them pretty much instant access to all knowledge and anyone else on the internet.

What a very different world that will be. It is one that may be less than a generation away.

© Investment & Business News 2013

Apparently we all spend most of our lives living in the same place; it is called Storyland. According to Jonathan Gottschall, who pended the book ‘The StoryTelling Animal’, “By the time we die we will have spent more time in the provinces of Storyland, (novels plays, TV Shows, songs, dreams fantasies, and so on) than anywhere else.”

But the story or – if you want to use the word that anthropologists and marketers prefer – the narrative, has a resonance that strikes right into the core of our soul. Present facts as a power point presentation, and their impact largely washes over us, like waves on a beach during high tide. But present facts as part of a story – one involving taste and smell, fear and hope, tragedy and love – and our brain becomes a beacon of emitting neurons.

Yet the narrative can fool us, can drag us into crazes, and lead us to make calamitous errors. Then there is justice. A judge or jury subjected to one particular narrative can rarely see the other point of view. The narrative can enlighten us, but it is also the stuff that wars, economic bubbles and legal injustices are made of.

For  examples see:

Property bubble: is this a yarn that can only ever have an unhappy ending? 

Is BP a victim of the narrative? 

Entrepreneurs need to diversify more

Facebook results: suddenly its valuation does not look so daft 

© Investment & Business News 2013

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Dotcom bubble: what madness? How could anyone have been so stupid not to have seen it coming? And then it happened again, a company with a p/e ratio off the charts, a track record going back just a few years, founded by a person/persons so young they looked as though they should still be at school, and yet they queued up to buy shares on flotation. How stupid was that? It is just that it may not have been so stupid after all.

Replace the word Facebook with the word Google and things look much the same, except we can now look back with the benefit of hindsight, and say that Google was cheap when it was floated. It is just beginning to look as though Facebook was cheap too.

The latest result from Facebook told an impressive tale. Sales were up 53 per cent in the latest quarter, profits were up by… well …numbers can’t tell us, because the company went from losing $157 million in the equivalent quarter last year, to making $333 million profit this time around.

Now look at the company’s valuation. Its market cap is $83 billion. Turnover was $1.81 billion in the latest quarter. That is still quite a multiple. Just bear in mind, however that on flotation the p/e was… well, as the company was making a loss at the time, it was infinite.

Now consider a story doing the rounds a couple of months ago. The ‘Guardian’ in particular made a lot of noise about it. It cited research from SocialBakers indicating that the company had lost four million users in the US in just one month. It was a real ‘woe is Facebook’ story; proof, or so many said, that the company was full of naïve hope over reason. It is just that SocialBakers reacted to the ‘Guardian’ story saying: “Sometimes, journalists get stats wrong.

The Facebook stats found on our page are not primarily intended for journalists, but rather Ad estimates for marketers.” It added: “Around 50 per cent of the UK’s entire population is on Facebook – which is amazing!” and suggested: “The bottom line here is that there is no story.”

Jan Rezab, CEO at SocialBakers, said: “We previously published a clarification to one of The Guardian’s articles three months ago. In this article, I explained the stats in question, revealed the source of the stats, and admonished journalists against jumping to conclusions about them going forward. Well, The Guardian did not heed the advice, jumping to an even bigger conclusion this time.”

And that in a nut shell says it all. No one can really know for sure whether Facebook is worth its current value, but to laugh it off is not wise. It is fun to suggest companies such as Facebook are made of little more than smoke and mirrors, but little things like facts are rarely allowed to get in the way of a good story or indeed a bit of fun.

Take the argument that Facebook can’t make money from mobile advertising. In the latest quarter mobile advertising made up 41 per cent of the company’s ad revenue.

Consider the story of Google. Its share price has risen from around $100 in 2004 when it was floated to around $900. Yet during this time, its p/e ratio has crashed, so that now it is around 26 – still highish, but nothing spectacular. At flotation, Google’s market cap was around $23 billion, now it is making more than that in profits in less than a year.

Facebook has another similarity with Google. Back in the mid noughties, soon after Google was launched, its Ad Words program represented perhaps the most cost effective form of advertising ever invented. The markets did not get that, which is why they undervalued the company. It is not like that now for Ad Words, of course; the auctioning process has seen to that.
Today it is Facebook that seems to represent an incredibly cost effective advertising medium.

This is why its revenue will probably continue to grow at a very rapid rate for some time, and profits to revenue will probably grow too, meaning that total profits may yet grow at a rate that dwarfs even the growth enjoyed by Google during its golden period.

No one can say for how long Facebook will occupy such a high proportion of the world’s consumers’ time? It may or may not go the way of MySpace, but based on current popularity the potential for the company to increase profits is enormous.

© Investment & Business News 2013

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This may come as a shock. But apparently there used to be a system in the UK where if you wanted to send a message to someone, you wrote it down on a piece of paper, put the paper in a flat paper bag known as an envelope, stuck an adhesive picture of the queen in the top right corner of this ‘envelope’, and put it complete with this likeness of the Queen in a big red box.

Some people put other things in the red box, but they were not thought of positively by society. And then, something miraculous occurred; this envelope appeared on the door mat of the person for which the message inside was intended a day or two later.

It seems like a primitive custom, but that, according to a research recently made available on Facebook and emailed to journalists, is how things used to be.

And now, a company that operates in this state of the art way of delivering messages is set to be privatised. The Unions say that the Royal Mail is the type of company, offering such an essential service as it does, that should be under state ownership.

The Unions are right. How could we possibly manage without the Royal Mail if it wasn’t for email, Facebook, Twitter, Skype, LinkedIn, oh and DHL and TNT and, well… the list goes on a fair bit.

Delivering messages by the British postal service was once a lynchpin of the British economy, and indeed of the British Empire. Where would Victorian Britain have been without it?

But, and this may come as a shock to some, Queen Victoria is no longer on the throne and these days we have this thing called the Internet. Funnily enough, in this Internet age the Royal Mail has found a new function – namely to be the means by which shoppers and eBay users can have the products that they buy online delivered.

Some of the products shipped over the Internet will be sent that way only on a temporary basis. Love Film is a great user at present, but for how much longer? Given the increasing ease by which we can watch films online whether there will be a need for DVDs delivered by post seems unclear.

The Unions don’t like it, and it may be harsh to say that they need to accept Queen Victoria isn’t the throne anymore, but their concerns are legitimate. But the government has come up with a way to appease workers; 10 per cent of the shares on offer will be given to staff. Unions may try to block the privatisation, but once it has happened they will surely be forced to step back.

The Royal Mail has too many competitors for the Unions to risk weakening it, and the job security of members.
But there are some questions.

Does Royal Mail have an unfair advantage? In much the same way BT used to have (perhaps still does) an unfair advantage in supplying cables to the home (which the competition authorities tried to counteract), the Royal Mail has a distribution monopoly. When was the last time you went to the Post Office to send a parcel and the clerk asked you if would be using the Royal Mail or DHL today?

And then there is timing.

Privatising state companies, such as the Royal Mail and indeed Lloyds Bank and RBS, may well be a good idea. Frankly, the government coffers could do with some extra money. But does that mean the ideal timing is now? It may, but right now the government can raise money easily and cheaply.

The plans to privatise the Royal Mail have nothing to do with whether this is a good time, and a lot to do with where we sit on the political calendar.

Finally, there is a question mark over the belief, commonly held, that governments are lousy at running companies and that the private sector is always best. Maybe the private sector is best, but perhaps not for the reasons generally given. Lots of private firms turn out to be badly run, even more badly run than state owned firms. It is just that such firms go bust. State firms tend to get more subsidies.

See it in terms of evolution.

This works by having lots of different ideas, and selecting only a very small proportion of them. You can’t second guess what evolution will throw up next. The private sector scores over the state sector because it has survivor bias built in. Good businesses evolve. The state sector tries to do things via a kind of intelligent design, and that is what doesn’t work.

© Investment & Business News 2013

Poor old Rupert Murdoch – his purchase of Myspace was not exactly one of his best moments and maybe he is still puzzling why. At least that may explain his tweet last week.

He tweeted: “Look out Facebook. Hours spent participating per member seriously dropped. It was the first really bad sign seen by MySpace years ago.”

Now Mr Murdoch has voiced doubts about Facebook, it may be worth asking: why and why not?

As for why, we have two reasons. Firstly, it kind of fits with the Myspace experience. After all, the social media site once seemed unbeatable. Is it not logical that Facebook, after flying too close to the sun will find the wax holding its feathers together will melt and it will crash, just like Myspace did? Secondly, data out last week revealed that Facebook is losing users.

As for why not, firstly, yes, it is true that Facebook is losing users from its website, but it is gaining them on its apps. Secondly, Facebook is not Myspace in a profound way. The Internet is all about cooperation, about different services dovetailing with others. Facebook is good at this dovetailing and Myspace wasn’t. Then again, Mr Murdoch’s media empire is not one for dovetailing either.

Mr Murdoch was late to embrace the Internet and when he did, he only half did. For example, the ‘Times’ isn’t really on Google. The ‘Financial Times’ charges for its content too, but at least it is fully immersed into search engines. It is perhaps a subtle point but one that seems at odds with the Murdoch ethos.

Facebook has locked its users in in a way that Myspace never did, meaning that it benefits from high barriers to exit. Oh, and one more thing, it is learning how to monetise its massive user base too.

© Investment & Business News 2013

Sometimes stories are too good not to tell, and little things like facts must never be allowed to stand in the way of their telling.
Take Facebook. The ‘Guardian’ broke the story yesterday, and the bandwagon got moving in its wake.

“In the last month, the world’s largest social network has lost 6m US visitors, a 4 per cent fall, according to analysis firm SocialBakers,” said the ‘Guardian’ and added: “In the UK, 1.4m fewer users checked in last month, a fall of 4.5 per cent. The declines are sustained. In the last six months, Facebook has lost nearly 9m monthly visitors in the US and 2m in the UK.”

The piece continued: “Users are also switching off in Canada, Spain, France, Germany and Japan, where Facebook has some of its biggest followings. A spokeswoman for Facebook declined to comment.”

It also quoted Ian Maude at Enders Analysis who said: “The problem is that, in the US and UK, most people who want to sign up for Facebook have already done it…There is a boredom factor where people like to try something new.” See: Facebook deserted by millions of users in biggest markets 

Is Facebook set to go the way of MySpace – from unbeatable to beaten in just a few months?

Many jumped on the ‘Guardian’ article and concluded that this was so. It was an easy sell. The world is full of social media cynics, who see bubble writ large. And to those who say: “But Facebook is so wonderful,” they laugh and say sarcastically: “This time it is different.”

It is just that SocialBakers, the very people who the ‘Guardian’ cited in its article, see it differently – very differently, in fact.

“Sometimes, journalists get stats wrong,” it said. “The Facebook stats found on our page are not primarily intended for journalists, but rather Ad estimates for marketers,” it stated in its web site,. And added: “We previously published a clarification to one of The Guardian’s articles three months ago (read more in Clarification to ‘Guardian’ on Facebook losing UK users). In this article, I explained the stats in question, revealed the source of the stats, and admonished journalists against jumping to conclusions about them going forward.”

Jan Rezab, CEO at SocialBakers, said: “The Guardian did not heed the advice, jumping to an even bigger conclusion this time.” He added: “We state, quite clearly, on our site that these figures are rough estimates and cannot be used to determine Facebook traffic. Again, we explained this to The Guardian when they published a similar story some months ago.”

He then pointed out that “around 50 per cent of the UK’s entire population is on Facebook.” This, he said, “is amazing!”

There are two stories here. Story one: how myths can grow when they tell a story that appeals to the imagination; how there is a deficit between facts and what you read in the newspaper, even venerable newspapers such as the ‘Guardian’ – let alone the more ‘all migrants are evil’ type of newspaper. The other story relates to Facebook.

This company now has a very subtle but important benefit. Its unique selling point relates not so much to the size of its user base, but the network that describes how its users interact with each other. Network theory is a burgeoning, poorly understood, but very important field of study. See: Network theory and science

One thing network theory does tell us is that networks are often very robust, and very hard indeed to destroy. To illustrate the point, the Internet itself was designed in the way it is to be impervious to nuclear war. Al-Qaeda survived the death of Osama bin Laden, and it is devilishly difficult to change someone’s mind, because the sets of arguments that create a belief can be represented by a network.

Disruptive technology, in which new technology changes the face of social media, may spell curtains for Facebook, but until something new comes along, it remains in a very strong position, and a position it is now learning how to make money from too.

© Investment & Business News 2013

It was the best year since the heady day of the mid-noughties for the venture capital business. At least it was the best year for Venture Capital Trusts (VCTS), which is not necessarily the same thing, although it should be a pretty good guide.

According to the Association of Investment Companies – or AIC if you are in a hurry – the VCT sector raised £402.5m in the 2012/13 tax year.

This compares with £331 million in the previous year, and as little as £158 million in 2009/09. In the year 2005/06, however, the sector raised £779 million, which was its record year. It also did better in 2005/05 and 2000/01.

The year 2003/04 was the worst recorded, (stats go back to 1995/96), when just £50 million was raised.

From an investor’s point of view there are strong tax benefits in investing into VCTs. Of course these days, tax avoidance is considered a bit fly, a bit immoral. But this does not apply to investing in VCTs; the government wants investors to pile their money into this sector.

Actually, this is the kind of news that UK plc needs. In all the criticisms aimed at banks, it is forgotten that truly innovative companies don’t need bank loans. They need investors, who take equity and a share in future profits, rather than charge a fixed interest rate, which is the same regardless of how successful the recipient of the investment is.

Think of it this way. When it comes to measuring the success of innovative companies, say ten years after inception, the curve representing success does not follow a normal distribution pattern. Rather a small number of companies – the likes of Google and Facebook – make it really big, but many others fail altogether. A banking model applying debt is manifestly not the right model for such a scenario.

Just remember, however, that smaller companies and real start-ups are too small to interest the VCTs.

For the UK it is good news that the VCT sector seems to be growing in popularity again. The UK also needs another investment level, relevant to companies that fall outside the VCT radar.