Wednesday, 5 January 2011

Facebook, VAT & Vapour

Overheard in the caravan:

Hayley: “Why did you put the dried fruit in the fridge?”

Chairman: “Did I? I thought I had put it in the cupboard.”

Hayley: “Oh dear – am I going to find a teapot in the oven? Where did you put the boy’s school sandwiches?”

Chairman: “They’re in the bottom of the fridge, but I refuse to be held liable if you find them in the bedroom.”

I thought it was rather dark yesterday morning. Until Hay told me there was a solar eclipse I was thinking that perhaps we were set for Chronozon, the Lord of the Abyss, to make an appearance and considered preparing a cat to sacrifice to him.

Saw a wonderful name on the side of a van yesterday – Chris Tallis. I’m not fibbing – look up

George Osborne, the Chancellor, has suggested that increasing the price of almost everything by 2.5% is going to create jobs and get us out of the recession. Not sure where he studied economics, but getting the population to rein back on spending because their shopping has become more expensive overnight is not exactly what you need to create jobs. The poor bastards round here are already turning to loan sharks to cope.

Talking of money, Facebook is reputed to be worth in the order of $50bn. This valuation is predicated on the amount of money a certain bank (remember those) has been prepared to ‘invest’ in Facebook.

Facebook manufactures nothing and owns virtually nothing. Its business case is based solely on its relationship with a billion or so subscribers who pay nothing to Facebook; a relationship Facebook does not seem to value all that highly.

  • I buy nothing from adverts on Facebook.
  • Facebook tells me little, except the minutiae of the daily lives of some of my friends – it is socially and commercially valueless to me.
  • It bombards me with inane apps, which if I sign up to them, garner my personal details and those of my contacts – solely with the intent of spamming them.

Call me old fashioned, but surely pouring someone else’s money into vapourware is how a global financial collapse is seeded. Might as well sink your money into black tulips.


  1. I have a little money to invest. Have you any black tulips? Put a picture of them on your Facebook page if you have.

  2. As I understand it the valuation was based on an institution investing about 450 million in return for 1% of the equity. I can't see how anyone can value a company with no tangible assets at 50BN when their total revenue is only 2BN with very little profit. If folk carry on with those kind of ideas we could end up with a banking crisis.................


  3. I hate to pour cold water on this but Facebook Inc. owns several things that are very valuable indeed..

    1) A software platform that scales to half a billion users without too many problems.
    2) The eye-balls of half a billion relatively affluent people on a regular basis.
    3) A goldmine of behavioural and informational data regarding the whims, preferences and interests of said 500,000,000 people.

    Looking at the experiences of similar long-tail software businesses it seems like a speculative but potentially good investment to me, a 25X multiple on revenue reflects the IP and the hype of the specific company, but anywhere between 10 and 20 would not be unusual for this kind of business; they seem to be winning in their market.

  4. Steve: But it's of no practical use. There's nothing there to make people stay members. There's no lock-in, as we experts call it.

    I'd imagine that 9/10ths of the users are inactive after having played with the system for a few months. It's a fad.

  5. SB, I agree, most people on the planet have no practical use for it, like excel spreadsheets and CRM applications but it's still of use to enough people for enough time to be very valuable, and let's be honest everything we buy/use apart from basic sustenance is a "fad" really.

  6. Steve: I now see Facebook is trying to copyright the word 'Face'.

    It wouldn't be so bad, but half my contacts don't even bother to put their 'face' on their profiles.

    EBay - now there's a useful site; and Amazon.