Wednesday, February 01, 2012

Facebook IPO Looking Smaller Already

Greedy financial advisors love to gouge their clients by pushing some hot new thing.  The hot new thing in the 1990s was an Internet company going IPO.  Everything old is new again.  Facebook's long-awaited IPO is almost ready.  The company is making plenty of money but there are still plenty of reasons why I'm not buying any FB shares.  These are the same reasons I didn't buy shares in any tech companies fifteen years ago.

Facebook's sector has no barriers to entry.  The basic principles of good social media design are now universally accepted: a central scrolling timeline with constant minor tweaks to add data embeds; a front page with sidebars to commonly used items like an accepted appointment reminder; a simple messaging tool; and a couple of other gizmos.  All of the attendees at social media conferences pick up on these key items.  Any of them could rapidly create and deploy a competitor to FB at little or no cost.  Someone in China has probably already started.

Facebook's business model expects unlimited compound growth.  The user base is already so large that FB has probably saturated the market for all literate computer users and as many of the semi-literate ones who can be reached.  Growing market share into "under-computed" parts of the globe is probably a waste of effort. Maybe semi-intelligent metering devices linked to energy "smart grids" could be some blue-sky source for exponential growth, especially if they are enabled with their own avatars that can push updates to their owners. On second thought, forget I said that.  Semi-intelligent bots crawling around Facebook 2.0 sounds like a scenario for a globally self-aware AI.

Facebook offers little customer service.  I use this platform daily and I still cannot figure out how to turn off certain applications.  Facebook claims to change its design to enhance the user experience but hasn't yet mastered the arts of testing changes with trial runs.  They should take a hint from how Microsoft and Apple manage their developers' conferences.  App designers already congregate to display their monetized wares, but it is not clear how well Facebook cultivates their contributions.  Maybe I should attend the next Facebook developers conference so I can ask them what changes would make the platform more valuable.

Facebook's CEO is still running a big company like a small one.  Mark Zuckerberg is undoubtedly a sharp guy.  The problem founding CEOs often have is their inability to run a large, mature company the same way they ran the startup version when it was still in their garage.  Steve Jobs at Apple was the rare founding CEO who could make the psychological transition.  Bill Gates at Microsoft did it too, growing into larger strategic roles later in life and eventually stepping away completely.  Jerry Yang at Yahoo could not pull this off and that is why Yahoo has been so troubled for so long.  I have not seen any evidence yet that Mr. Zuckerberg is capable of making the kind of transition that will cement his legend as a transformational entrepreneur.  Anecdotal stories of temper tantrums and spiteful terminations are not encouraging signs.

Count me out of the FB IPO.  The smartest money on the planet usually likes to liquidate big private stakes when they smell troubled times ahead.  Note that Blackstone Group went IPO in the summer of 2007, just before the market's all-time high.  Major smart money is pushing this IPO both as a liquidity event for their own stakes and as a positive news event that will push more IPOs through the deal pipeline.  The underwriters are already spinning the $5B debut as a deliberate step down from the planned $10B deal for the sake of conservatism and follow-on interest.  That's a nice story.  Maybe they're lowering expectations just in case it doesn't do so well.

Nota bene:  I am a heavy user of Facebook but I have no investment in FB at this time.