Facebook IPO, Over Valuations & the Tech Bubble

This has been an exciting week to watch Silicon Valley.  The much anticipated Facebook IPO is looming over much bigger questions–Is the company over valued? Are we experiencing a “tech bubble”?    The question of value has become even much more pressing for Facebook this week.  GM pulled its ads from Facebook because it could not justify spending millions on ads on the social network.  Indeed, this is one of Facebook’s Achilles heels.  The company has not been able to quantify and accurately measure the engagement of its ad network.  This prevents advertisers from being able to analyze the effectiveness of their ads.  As we saw earlier this week with GM, not every advertiser is willing to spend millions for “likes”.   At some point Facebook will have to be able to clearly demonstrate the level of engagement and how that engagement is turning into direct sales for advertisers.  For the majority of consumer goods, this will be a tough battle to prove.   How do you measure and tie a consumer’s purchase of a candy bar because they saw an ad for it on Facebook? Simple, you don’t. And that is the problem.

Mobile is also not Facebook’s darling.  The social network has failed to capitalize and monetize its mobile user base.   There are no ads run on mobile and this means there is no money there for Facebook.   The company lost money last quarter because an increasing number of users are moving on to use only the mobile platform.  This is certainly the case in third world country’s where desktop’s may not be as accessible as mobile phones.

So the question remains–is the company over valued? In my opinion, yes and no.  Facebook has not been able to really define a path to monetization that is truly measurable for advertisers.    This means that for some consumer goods companies, Facebook is not that valuable no matter what the size.  When companies make decisions to advertise they need to base those decisions on several factors, including consumer intent.  When you are on Facebook, are you really hoping you will find information about a new car? Not likely, you are there for entertainment.   So, GM was not so far off the mark when they decided to pull their ads–that is not their target audience (or at least not their ENGAGED target audience).   Now, the “no they are not over valued” view point is that having a massive audience has never been done before and they are becoming the new internet.  It is very true that the power of having amassed almost 1 billion people is undeniable.   Keeping those billion people engaged is going to be very interesting.   Think about how much data is transferred every second!  That data is incredibly valuable.   Is it $100 billion worth of value? I think so!  The trick is to have users continue to provide that data without experiencing “fatigue”.

Content is the most important element to the Facebook platform.  You and I are the content providers for a company that is worth BILLIONS of dollars! I am going to repeat that YOU AND I are the content providers for a company worth BILLIONS of dollars! Without that content–our content–why would anyone visit the site?  Think about that one next time you are updating your status or uploading a picture.

Tell us what you think!  Stay connected, stay in the conversation email us at npersonaservices@gmail.com or follow us on Twitter @npersona!

Starting this Wednesday, May 23rd, 2012 we will be at Artomatic doing their professional development track for entrepreneurs.  Come by to meet the team and say hi–FREE SING UP HERE:  http://www.eventbrite.com/s/98u9

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