Facebook IPO fail

The long-awaited Facebook IPO happened today with basically a whimper. Several of the investment banks behind the IPO had to step in to support the newly minted stock lest it fall below the $38 asking price.

Some pundits are spinning this as a good thing -- Facebook isn't starting off in bubble territory that will later crash. Others are painting a more gloomy scenario pointing to a valuation of $104 billion for what really amounts to a giant advertising company.

Having been through the previous tech bubble and watched many high-flyers lose 75% - 90% of their valuations in the space of one year, I count myself in the latter category. Yes I use Facebook. Yes I play along with "liking" things. Yes a lot of my friends are on Facebook. The real issue is how all that activity translates into hard dollars.

By definition, Facebook's income is derived in similar ways to Google's core search product. Displaying ads tailored to the user. My big concern (and the concern I had during the last tech bubble) is, do people really click through those placed ads and BUY something? And even if they do, is there enough BUYING to justify the cost-per-click?

While I'd never consider myself a typical user of anything, I have NEVER clicked a single Facebook ad. Asking my friends the same question, they don't either.

So what you have is this huge "free" resource that lots and lots of people use but where's the long-term business model that's going to create value for those paying the freight (advertisers and game integrators)? Is there one? Are Facebook eyeballs REALLY worth $104 billion? Keep in mind that's about 1/2 of Microsoft's market cap. And they actually produce products that make people productive (XBox and Windows Vista aside).

One thing it says is that our societal values may be seriously skewed. At no time in history have we placed such a high premium on what boils down to a leisure activity. What happens when a fickle consuming public gets bored with FB or finds a newer, better alternative? Oh and advertisers, are those Facebook clicks REALLY worth it?

05.18.2012. 19:10

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