the flaw here is that it assumes money is real. With no gold standard, money is entirely based upon perception. More fortunes have been made through adjusting this lens than actual hard work.
Facebook is not worth $33 billion
191–200 of 266 posts
Re: Facebook is not worth $33 billion
#192I hate to leap in with what seems like an ad-hominem attack on the 37 signals, but their utter and complete misunderstanding of all the basics of business is starting to grate on me, and I'm wondering if it has anything to do with Chicago. Is the problem that they're sitting there in a city without any other Internet industry, stewing in their own witty ideas, listening only to the adoring comments they get from the…
37signals != Chicago
http://en.wikipedia.org/wiki/Synecdoche
> "The city posted a sign," means that an employee of the local government (but not the geographic location or all of its residents) posted a sign
Re: Facebook is not worth $33 billion
#193Facebook’s biggest weakness is that its core value proposition to users is that everybody you know is on it. Any business whose core value proposition is that “everyone is doing it” is essentially a fad. Its success and usage is driven primarily by peer pressure. Sure Facebook is a decently designed site that makes sharing your photos, videos, comments, links, etc. easy. But that’s not hard to replicate (the backend…
Right. The moment Facebook starts charging me money is the moment I stop using Facebook.
Re: Facebook is not worth $33 billion
#194The argument between spolsky and dhh is funny but ultimately they seem to not be talking about the same thing. They are both right, but one is more right than the other.
Joel is talking about market value.
What Joel is saying is "dude, you don't understand value. Value is what people are willing to pay for. If someone - just one person - is willing to pay $100 for a millionth of a broken piece of crap, then that broken piece of crap is worth a hundred million dollars, your opinion of it notwithstanding".
He's right. Technically.
But David does not care about market value (although he tries to attack it and picturing it as not real). David is talking about intrinsic value; he's saying: "this thing has 500 million users, and that's amazing. But they don't make much money out of all those users, let alone any profit. So if we try to estimate the present value by actualizing future cash flows, we find the real price should be... well, not much".
He's also right. And I think he's fundamentally right.
During the housing bubble, some people (Peter Schiff for example, or the heroes of The Big Short) argued that the real value of housing was a multiple of rent (10-15 times rent), and that anything above that was crazy.
At the time, they were wrong -- they were very wrong; the value of a house was the market price, not the "intrinsic" price. The value of anything is always the market price.
But then suddenly there is no market. The bubble bursts and nobody's buying.
In that situation, if you're selling you don't have many options; but if you're buying how do you calculate a price at which you'd be willing to buy, and a price at which you may convince a seller to sell?
- - -
In a sellers' market (Joel's market) prices are fair because people accept them. If everyone wants a piece of Facebook at any price, just because they have to have it, then, well, the value of Facebook is infinite. It's not 33 billion dollars: it's the whole amount of dollars in the universe, plus one.
But this situation never lasts. There has to be a time when Facebook will be out of fashion, and someone will have to ask what is the intrinsic value of this thing.
The intrinsic value is hard to compute because you need to actually know how the company makes money, you need to understand its operations, its cost structure, strategy, etc. That's hard work for a public company; it's almost impossible, from the outside, for a private company.
But one thing is certain: the intrinsic value of Facebook is not infinite.
And then and there, David has a point.
Re: Facebook is not worth $33 billion
#195Earlier quoted context omitted.
Argument to Authority is a logical fallacy.
That logical fallacy always bothers me especially in cases where experience and inside knowledge are crucial to forming an opinion. The people listed above all have experience, knowledge and are more qualified to value companies than many other people. Of course it doesn't make their opinions absolutely correct, but it does lend some legitimacy to the FB valuation argument.
Of course simply stating that "Argument [from] Authority is a logical fallacy" is it's self an argument from authority, one is trusting the author to have properly researched the fallacious nature.
Petty arguments aside...
Something being logically fallacious does not make it false, all it is saying is that the premise [that top business minds that have successfully done this sort of thing in the past] does not prove the conclusion [that they know what they are doing/ will be successful now].
Of course it doesn't prove it, no more than knowing someone is Jewish male proves that they are circumcised, it just provides a strong suggestion as to the outcome.
Re: Facebook is not worth $33 billion
#196They printed the same article 3 year ago:
http://37signals.com/svn/posts/670-can-microsoft-buy-cool-fr...
Re: Facebook is not worth $33 billion
#197I hate to leap in with what seems like an ad-hominem attack on the 37 signals, but their utter and complete misunderstanding of all the basics of business is starting to grate on me, and I'm wondering if it has anything to do with Chicago. Is the problem that they're sitting there in a city without any other Internet industry, stewing in their own witty ideas, listening only to the adoring comments they get from the…
It's TAUTOLOGICAL.
I think you are talking past one another. He's saying that he does not think that their valuation is merited. You are saying that his assertion makes no sense because valuation is, by it's nature, defined by the current trading price.
You are I think technically correct, but the market isn't always perfect in judging the value of something, and I think he is saying that this is one of those cases.
"The whole section "Minority investment evaluations aren’t real" is so economically bizarre and incorrect that I don't even know where to start."
I don't think that's so bizarre to say. If there is huge demand for something and only a very very limited supply, then doesn't it stand to reason that price will go up more than it would have otherwise if there was more supply?
Re: Facebook is not worth $33 billion
#198Earlier quoted context omitted.
I think their CPM is in the $30-$40 range, but the key missing piece of information is how many views they get per user. I know my Facebook use has gone from multiple views per day (20, 40?) to 1 page every other day. Still lets say each user looks at Facebook twicer per day, each user is about 1/2 a CPM per year, or $20 revenue per year. But CPC, well I've never clicked on an ad on Facebook in my entire life.
Never use tech-savvy people as representative examples when evaluating advertising. Otherwise, even google would be out of business.
The problem with the comparison of Facebook VS Google is that Google advertising is fantastically targeted.
You literally type into Google "I have this problem" and get a bunch of ads solving that problem. It is practically the holy grail of advertising. Now consider that it is a catch all for personal and corporate questions, it is a cash cow. It is perfectly acceptable to google something at your job, click on a link, and buy a $15,000 system.
Facebook might know a lot about you, but they don't know what you are looking for at any given moment. Add on top that most people are spending their time on personal relationships, and it isn't the same even if they get more impressions. I can't log into Facebook from work and say "who has 5" diameter pipe?" and expect a response, but if I google that I find a vendor and place a multi thousand dollar order.
Also the market on Facebook is somewhat inverted. The "best" customers are generally on their the least. The most frequent people are college students - mostly broke at that. If you aren't advertising clothes, personal electronics, or local bars I don't see the draw.
Re: Facebook is not worth $33 billion
#199Earlier quoted context omitted.
> You ready to escrow that $10K? Sure. As long as you do the same.
I'm in. Email me at david at 37signals.com with the details and we'll go from there. In fact, I think this would be a great little business. Allow people to place long-term bets with money on the line on predefined, objective results. Then hold the cash in escrow until the resolution day.
[deleted]
Re: Facebook is not worth $33 billion
#200Earlier quoted context omitted.
They're almost certainly making $2 per user. Another dime is gonna be easy.
I think their CPM is in the $30-$40 range, but the key missing piece of information is how many views they get per user. I know my Facebook use has gone from multiple views per day (20, 40?) to 1 page every other day. Still lets say each user looks at Facebook twicer per day, each user is about 1/2 a CPM per year, or $20 revenue per year. But CPC, well I've never clicked on an ad on Facebook in my entire life.
you must be kidding, right? If their CPM were $30-40 they'd be making many billions per year, not (maybe) 1 billion.