Veteranscribe's Blog

Facebook Might Not Be Forever, But These Are!

The financial world is all agog over Facebook’s impending IPO, which will set the market value of the company at something like $100 Billion, of which Mark Zuckerberg will own around 30%.  Nice going, kid.

I’ve enjoyed what Facebook offers, particularly the ability to make new friends and to reconnect with old friends and family around the world.  This is what I “Like” most about it. I suspect that most of my FB friends feel likewise – ooh, lousy unintended pun.

But Facebook is a business. Business doesn’t succeed unless it delivers something of value. To understand what’s been going on with Facebook, and why it’s been so successful to date, be sure to read Andy Kessler’s Wall Street Journal column of Groundhog Day, 2012,

“The Button That Made Facebook Billions:  The power of ‘Like’ as an emotional sensor is driving the company’s exorbitant valuation.”

 Rather than attempting to condense and paraphrase Andy, I’ll quote him and another WSJ piece. They tell the story better than I can. Andy points out,

“As bizarre as this sounds, one of the most valuable innovations in technology over the last several decades is Facebook’s “Like” button. That’s what has propelled the company to a galaxy-orbit valuation for its forthcoming initial public offering, filed Wednesday.

“This is not only because the word “like” is, like, the identifying word of an entire generation. It’s because computing has evolved beyond just taking directions from humans—and instead is cozying up to us and sniffing out our emotions and intent.

 “[…] running ads next to pictures of your buddy Johnny funneling beers at a lacrosse game is not exactly what [advertisers] had in mind. Then, in mid-2010, Facebook rolled out its Like button, which transformed the company from a somewhat interesting social network into a major media player. The power of Like as an emotional sensor is what’s driving Facebook’s exorbitant valuation.

“Google, worth $190 billion with $38 billion in annual sales, is the closest real competitor to Facebook. Google lures you to its site via its search engine and sells ads against results, paid per click…basically it runs an ad platform. It’s a great business with operating profits of 35%, similar to Facebook’s.

“Facebook doesn’t sell phones or tablets, or ship physical products or even do searches. Instead, it has a vibrant, pulsating community of 845 million people willing to share their personal lives with others. Facebook is a giant emotional locker.

“The adage about advertising is that only half of ads are effective, but no one knows which half. With the ‘Like’ button, Facebook is like Bob Eubanks on “The Newlywed Game,” who promised contestants “a prize chosen especially for you.” Advertising’s nirvana is an ad chosen especially for you. Of all the players, Facebook is the closest to delivering.”

 The Journal article says that Facebook too is profitable, although development and employee costs are growing faster than its revenue, and

“Facebook’s revenue is still driven by online ads. The number of ads delivered on the site grew 42% and the average price per ad grew 18% over 2011 from 2010…”

So can they keep it up? How long will it last? Who knows – success in business breeds imitation and competition.  There surely is a “Next Big Thing” out there somewhere.  Only diamonds are forever.

 In the meantime, let’s understand what’s going on here while we enjoy the ride and our online friendships.

With Facebook, What You ‘Like’ is What You See – in advertising pitches.  Remember that you’re in control here!

Remember too – if you’re reading this, originally posted on Facebook, that means you’re my Facebook Friend. And, doggone it,

I “Like” You.

This entry was posted on February 2, 2012 at 9:39 pm and is filed under People. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.