Fred Wilson's response to "Paul Graham's Letter to YC Companies" • Hacker News Board

Re: Fred Wilson's response to "Paul Graham's Letter to YC Companies"

#41

Post by rexreed » Tue, Jun 05, 2012, 3:23 PM UTC

dxbydt wrote: post #37

AznHisoka wrote: post #27

Build something people want and will pay for. Stop worrying about Facebook and IPO's. Waste of time.

I see this attitude all the time in SV techies - lets just ignore the finance because its all chatter anyway. Frankly, this line of thinking is counter-productive and quite dangerous. Macro matters much more than slapping together some code to build widgets people will want & will pay for. For one thing, most of those people who want & will pay are getting their dough from boring non-tech ventures affected entirely b…

What's wrong with building stuff people want and selling it for a price they want to pay? That seems to work in all non-tech industries, especially ones that are not used to raising any money or going public. Indeed, isn't that how most business works?

Re: Fred Wilson's response to "Paul Graham's Letter to YC Companies"

#42

Post by dcaranda » Tue, Jun 05, 2012, 3:26 PM UTC

Despite market fluctuations, pundits and haters - there is an objective truth that Facebook's financial performance is exceptional.

Facebook full year 2011 EBITDA was roughly 55%, demolishing google's 37% and apple's 42%. Wilson approximates a 40% margin in Q1, but ad businesses tend to be Q4 heavy due to holiday shopping. Facebook has demonstrated exceptional leverage in its model.

Facebook has growing pains for sure, but that is likely a result of being the first to scale in its market.

Who knows what the market will do, the general sentiment here and in other places seems to be largely emotional and indicate that it will go down further. But even if you strip away Facebook's brand name and sexy market, the numbers are impressive and the business performs very very well.

Re: Fred Wilson's response to "Paul Graham's Letter to YC Companies"

#43

Post by AznHisoka » Tue, Jun 05, 2012, 3:36 PM UTC

dxbydt wrote: post #37

AznHisoka wrote: post #27

Build something people want and will pay for. Stop worrying about Facebook and IPO's. Waste of time.

I see this attitude all the time in SV techies - lets just ignore the finance because its all chatter anyway. Frankly, this line of thinking is counter-productive and quite dangerous. Macro matters much more than slapping together some code to build widgets people will want & will pay for. For one thing, most of those people who want & will pay are getting their dough from boring non-tech ventures affected entirely b…

Well our country and economy is already over inflated with debt, so it wouldn't be such a bad thing if discretionary spending halted.

really, would that be such a bad thing to the overall economy? People tightening their spending, instead of recklessly borrowing debt, and buying nice things that ultimately aren't necessary? I guess if you're a company that targets discretionary spenders, you're doomed.

Re: Fred Wilson's response to "Paul Graham's Letter to YC Companies"

#44

Post by bad_user » Tue, Jun 05, 2012, 3:37 PM UTC

dcaranda wrote: post #42

Despite market fluctuations, pundits and haters - there is an objective truth that Facebook's financial performance is exceptional. Facebook full year 2011 EBITDA was roughly 55%, demolishing google's 37% and apple's 42%. Wilson approximates a 40% margin in Q1, but ad businesses tend to be Q4 heavy due to holiday shopping. Facebook has demonstrated exceptional leverage in its model. Facebook has growing pains for sur…

The problem isn't that Facebook doesn't have earnings, but rather their incredible P/E ratio.

Also, the profit margin doesn't say much about a company that doesn't do much other than its core product, while Google and Apple have their hands in other products as well. If anything the chances for long-term survival look better for companies that diversify successfully and Facebook hasn't demonstrated an ability for that.

Re: Fred Wilson's response to "Paul Graham's Letter to YC Companies"

#45

Post by mikeryan » Tue, Jun 05, 2012, 3:43 PM UTC

eykanal wrote: post #4

From what I understand, Facebook's main problem is a lack of a stable income source. It's becoming more and more apparent that advertising is not going to be the panacea that it was thought to be, what with numerous studies showing poor facebook ad performance and companies like GM pulling their facebook ad campaigns altogether. Sure, they booked $1B last quarter, but annualizing that number requires some confidence…

I think Facebook's isn't stable income. I think they've got ads and their credits system. They have had stable revenues with a pretty consistent 25% margin. I feel FB is a large and stable company.

Facebooks issue is one of perception - one they help perpetuate. They've continually been thrust into the top-tier of tech companies (Apple, Amazon, Google, MS) and the Facebook "problem" is that right now they not. They have the lowest market cap today of any of these companies, (besides having the largest P/E outside of Amazon). And what they don't have a is clear path to how they're going to grow revenues in a manner which will keep them on pace with a Google or Apple.

Building a 25-50 (I think FB is going to continue to slide) billion dollar company in 8 years is an unbelievable achievement and is why people will continue to invest heavily in early stage tech. I think the effect on startups is that VC's and later stage investors have always assumed that users == money. Twitter and Facebook have both raised billions of dollars using this formula. I think this belief is going to be shaken a bit by Facebook's trouble's monetizing their user base. But maybe thats just a reality check that Silicon Valley needs.

Re: Fred Wilson's response to "Paul Graham's Letter to YC Companies"

#46

Post by philwelch » Tue, Jun 05, 2012, 3:44 PM UTC

dxbydt wrote: post #37

AznHisoka wrote: post #27

Build something people want and will pay for. Stop worrying about Facebook and IPO's. Waste of time.

I see this attitude all the time in SV techies - lets just ignore the finance because its all chatter anyway. Frankly, this line of thinking is counter-productive and quite dangerous. Macro matters much more than slapping together some code to build widgets people will want & will pay for. For one thing, most of those people who want & will pay are getting their dough from boring non-tech ventures affected entirely b…

Counter example: Apple. Got through the last recession very well, exactly by focusing on building what people wanted.

Re: Fred Wilson's response to "Paul Graham's Letter to YC Companies"

#47

Post by dxbydt » Tue, Jun 05, 2012, 3:56 PM UTC

AznHisoka wrote: post #43

dxbydt wrote: post #37

Earlier quoted context omitted.

I see this attitude all the time in SV techies - lets just ignore the finance because its all chatter anyway. Frankly, this line of thinking is counter-productive and quite dangerous. Macro matters much more than slapping together some code to build widgets people will want & will pay for. For one thing, most of those people who want & will pay are getting their dough from boring non-tech ventures affected entirely b…

Well our country and economy is already over inflated with debt, so it wouldn't be such a bad thing if discretionary spending halted. really, would that be such a bad thing to the overall economy? People tightening their spending, instead of recklessly borrowing debt, and buying nice things that ultimately aren't necessary? I guess if you're a company that targets discretionary spenders, you're doomed.

> guess if you're a company that targets discretionary spenders, you're doomed.

other than food clothes & shelter, everything in the world is by definition discretionary spending.

Re: Fred Wilson's response to "Paul Graham's Letter to YC Companies"

#48

Post by mrshoe » Tue, Jun 05, 2012, 4:11 PM UTC

Personally I love to see Facebook's stock languish. Not because I dislike Facebook, but because it's great to see the market react rationally to an over-hyped tech stock.

FB is arguably the most hyped IPO in history. There was a blockbuster movie made about it. If ever there was a positive sign that we are not in a bubble, the poor performance of FB on the open market is it.

It's great to not be in a bubble. That means we won't wake up one day to discover it has popped. But to see the lack of a bubble on display so publicly has more important benefits. All the sub-par investors and entrepreneurs who flood the valley just to cash in on bubbles will be repelled.

Re: Fred Wilson's response to "Paul Graham's Letter to YC Companies"

#49

Post by eykanal » Tue, Jun 05, 2012, 4:37 PM UTC

arturadib wrote: post #30

eykanal wrote: post #4

From what I understand, Facebook's main problem is a lack of a stable income source. It's becoming more and more apparent that advertising is not going to be the panacea that it was thought to be, what with numerous studies showing poor facebook ad performance and companies like GM pulling their facebook ad campaigns altogether. Sure, they booked $1B last quarter, but annualizing that number requires some confidence…

As much as I think FB's valuation was high, they have the advantage of having a Product That People Really Want. This means that they have a lot of room to adjust their business model (so long as they don't screw up the UX/product while at it). Contrast this with GroupOn, whose product IS the business model...

Are you familiar with the following phrase?

> If you're not paying for it, then you're not the customer; you're the product.

Facebook's product is it's database of user information. If the actual customers, which currently consist mostly of ad companies, aren't interested, then they have a serious problem indeed.

Re: Fred Wilson's response to "Paul Graham's Letter to YC Companies"

#50

Post by SoftwareMaven » Tue, Jun 05, 2012, 4:46 PM UTC

eykanal wrote: post #49

arturadib wrote: post #30

Earlier quoted context omitted.

As much as I think FB's valuation was high, they have the advantage of having a Product That People Really Want. This means that they have a lot of room to adjust their business model (so long as they don't screw up the UX/product while at it). Contrast this with GroupOn, whose product IS the business model...

Are you familiar with the following phrase? > If you're not paying for it, then you're not the customer; you're the product. Facebook's product is it's database of user information. If the actual customers, which currently consist mostly of ad companies, aren't interested, then they have a serious problem indeed.

While there is a nugget of truth in that quote, it is also a vast simplification. There is a (somewhat) symbiotic relationship between FB, you, and FB's advertisers. If any one of them are abused too badly, the combined organism will die.

That means FB has to create a product people are interested in using and has to protect their privacy just enough while giving their advertisers what they need to successfully market products.