Re: <nettime> Wolff: The Facebook Fallacy

[Newmedia@aol.com]

Nettime:
 
Michael Wolff, who I met 15 years ago when negotiating to buy a  business 
from him, is a very smart guy -- particularly about advertising.
 
Listen to what he says.  There is no there there.  We are now in  a DIGITAL 
economy and Facebook was "sold" (by its own management) as if we  were not!
 
Here is the "exchange" that has occurred over the past few days on the  
*public* Facebook page of David Kirkpatrick, ex-Fortune writer and author of  
"The Facebook Effect" --
 
    *    
 
_David  Kirkpatrick_ (http://www.facebook.com/DavidKirkpatrick) 

    *    

Two salient points in this NYT article. A  portfolio mgr's quote: "It's a 
huge disappointment. Investors were expecting  easy money on this one." Which 
means Wall Streeters presumed immediate gains  should be theirs, not FB's. 
Illogical. And the fact Amazon similarly dropped  post-IPO. Back then only 
true believers recognized Amazon's long term  potential. Perhaps the same is 
true here. Which leaves the question for now,  re FB stock--how many true 
believers will there  be?

 
_Mark Stahlman_ (http://www.facebook.com/markstahlman)   
 
Few. This deal was sold on false pretenses.  They DON'T have 900M "users"
-- it's really 6M "groups" of 150 people each and  behaves completely
different from a TELEVISION network. The whole "eyeballs"  notion is
*wrong* when the eyeballs can talk  back!


    *    
 
_Bob Sutton_ (http://www.facebook.com/sutton.bob)  


    *    
 
I'm  surprised that the GM ad budget is being given so much credence in
Facebook's  post-IPO valuation. GM concentrated a $3B advertising account
in fewer hands  last quarter, with the media spending managed by a shop
that doesn't currently  bu...y FB  yet. Costs to retool the agency for one
client (or subcontract GM's FB spend)  would exceed the nominal $10M value
and complicate a ginormous consolidation,  so they simply dropped the
contextual ads line item. For now. (It's not as  though GM abandoned social
media. Search for them on FB and you'll find a  dozen or more brand pages,
developed at a reported cost of $30M, all still  working.) Why is that so
confusing?  Supply-chain issues constrain purchasing  decisions in lots of
markets. I suppose Facebook couldn't comment on the GM  announcement
outside the Road Show presentations which were already done by  the time
the WS Journal broke the GM story, so it's been allowed to fester.  I'm not
a shareholder, but I do believe that a goldmine awaits the winner in
hyper-local, socially-aware online advertising and that Facebook is the
emerging gorilla in that space. I'd love some shares at $23 or so and
failing  that, some future price once FB starts to demonstrate its cash
machine.

    *    

_David Kirkpatrick_ (http://www.facebook.com/DavidKirkpatrick)   

    *    

Note  my reporting in here about Ford: 
_http://www.thedailybeast.com/newsweek/2012/05/20/david-kirkpatrick-facebook-frenzy.html_ 
(http://www.thedailybeast.com/newsweek/2012/05/20/david-kirkpatrick-facebook-frenzy.html) 

    *    

_Mark Stahlman_ (http://www.facebook.com/markstahlman)  

The  market has no way to "price" Facebook-like advertising. Amazon
succeeds  because people buy *things* and Google succeeds because
businesses buy  *search-words* and so on. I was the banker on the 1992 AOL
deal at Alex Brown and, at that ...time, no one knew how to price online
subscribers, so  we became a "magazine" comparable. When your audience
*talks back* and often  tells people why NOT to buy something, you are in
completely new territory.  The mistake was FB management acting as if they
have a mass-media when they  don't.

    *    

_Bob Sutton_ (http://www.facebook.com/sutton.bob)   

I'll  defer to your expertise as an underwriter with the caveat that AOL
was an ISP  with monthly per-subscriber revenues plus sticky, compelling
content and  online communities. It may have been hard to price those
intangibles because  nobody...  had offered that combo before on scale and
magazine rate-base models provided  a convenient analog for the non-ISP
component: advertiser premium for  value-added, minus subscriber
acquisition costs times number of new  subscribers. But unless you've run
ads on both Google's search-oriented  platform and Facebook's social
platform, I'm confused at your objection.  Facebook has many Google-like
properties that the market ought to be able to  value. Ads are self-sold,
configured and scheduled. Algorithms decide who sees  them. The difference
seems to me that Facebook can serve ads or content  features to me based
upon their relevance in my dynamic social graph --  something no other
media in history has provided -- whereas with Google  AdSense or AdWords, I
have to ask the question first and you, as advertiser,  have to anticipate
my questions. And I could be completely wrong here, but  isn't it a truism
of selling stuff that the very best situation is a  one-on-one encounter
with a buyer? "Mass media" is an artifact of radio,  television, and
single-edition print runs, where the cost to spam everybody  were minimal
relative to the yield in sales. I've advertised with Facebook and  with
Google: Facebook was actually cheaper, but gave greater confidence that  my
very specific targets were served. By contrast, Google spent my budget
quickly, and left me little insight into the audience they actually
delivered.  I won't disagree that "social" must displace "search" for
Facebook's value to  be clear, but I think that it's telling that the
dominant player in Search is  moving toward "Social" as fast as its
billions and talents will permit.  Reputation and referrals are key
properties of successful campaigns and  Facebook, better than any other
media, seems poised to exploit  them.

    *    

_Mark Stahlman_ (http://www.facebook.com/markstahlman)   

Bob  -- thanks for your thoughtful consideration and honest experience. The
facts  seem to show that when someone asks for information on a topic
(search) there  is a good chance that might want to "buy" something
related.  Showing an ad  generated by an "algorithm" to a group of people
who talk back to you and to each other (social) is a very different
proposition, especially when you add in *small* screens and *privacy*
concerns. The market could at least model AOL in terms of "churn" and
"customer acquisition" costs, so they had a pretty good idea what to
expect.  Remember also, that KPCB was the lead VC and they were giving up,
hoping to  flush AOL down the Alex Brown "retail network." What neither the
market or the  VCs seemed to know (and which I found out doing my diligence
but was sworn to  keep quiet about), was that AOL had a *really*
high-margin business in Hot  Chat, which later became a massive disk-cache
for the porn industry. Yes, as  we now know, they were indeed an ISP for
some profitable business! So, I know  that IPOs often hide some surprises,
like abandoned storage lockers, so we can  only hope that FB has some
tricks up its sleeves that we haven't heard about yet.  Valuing something
you (kinda) know is one thing and trying to lock in on  something you don't
know at all is a fascinating  problem.

 
Mark  Stahlman
Brooklyn  NY


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