Here are the thoughts of someone who has been involved in both the valuation and sale of companies since the 1990s, namely me.
Facebook 2004 - 2009 RIP
The lifespan of big companies just continues to contract. Up until the late 1980s, we normally thought of big companies as having, by definition, a lifespan that could be counted in decades instead of mere years. Then all that changed in the 1990s. Startups launched, hit billions in valuation, often IPOed, and then disappeared in the blink of an eye. The root cause of the quick collapse, in most cases, was a total lack of cash in-flow.
If you were around in the 1990s, you probably remember the cry of, "It's all about capturing eyeballs for now. We'll find ways to monetize them later!" Sure, you will, and the check's in the mail, and it's only a cold sore.
Do you remember all the big search engines in the great search engine war of the late 1990s? Lycos, Infoseek, LookSmart, etc? Pretty well all of them had valuations in the billions at some point. Today, I can barely remember three of the "big 7", or was it "big 8", search engines.
My memory of new millennium flame-outs is even dimmer because I have just stopped allocating memory for their names. What's the point? Back in the 1990s I had a friend who could never get a woman to stick around for more than a week, yet he always had a girlfriend. Over time I realized how futile and frustrating it was to try to remember their names, so I developed the habit of referring to them without using names. "So, how are you two doing?" "Say hello, to the girlfriend for me." It's now like that with social networking sites.
Anyone remember the Facebook of last year? Friendster. Or was Friendster the Facebook of 2007? It doesn't really matter anymore, does it?
Likewise, MySpace is starting to decline in popularity.
So why do I believe that Facebook will be another spectacular flame-out by year's end?
It doesn't deliver anything that its users are willing to pay for. If Facebook had started charging for its services as some had recommended last year, the herd would have simply migrated to a free competitor who was willing to postpone revenues for even longer.
In order to compensate for its inability to charge for its services, Facebook is now committing slow motion suicide. Let me elaborate on that:
* The company refuses to accept the fact that its users see Facebook as a site limited to socializing and not for shopping. When users want to spend money they are most likely to go to Amazon which is always a mere click away.
* Facebook users, like most Internet users, have learned to subconsciously make the ads invisible. (How many times have you clicked a Google ad in the past twelve months? I trust organic search results far more than Adwords now. Indeed, I have come to associate Adwords with scams and bogus offers.)
* In response to the preceding point, Facebook is resorting to the desperate measure of carpet-bombing its users with advertising. This is never the solution. Even worse, it's stooped to displaying trick ads which appear to be Facebook buttons. How's that for trust building? This strategy just sours the company's relationship with users and makes it easier for them to abandon it later.
* Here's another reason why I think Facebook is doomed. It's teen and college demographic has a very short attention span. What's hot this year, is ancient history by next. The recent invasion by moms and dads will only accelerate the demise of its popularity.
Finally, the window of opportunity for a Facebook IPO shut a year ago. The IPO market will take years to recover and when it does everyone from investors to bankers will be cautious. Only companies which can deliver quantifiable value will be acceptable. By quantifiable, I mean simply that the market will be willing to pay for the company's product or service.
Companies which can only exist so long as they deliver a free service belong on the dust heap of economic history, to paraphrase a former president.
So, let the Facebook countdown begin.
The bottom line here is that if you want to build a business it's going to have to be one that delivers true value to customers--value for which they are willing to pay.
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