mannerisms

Ruminations on the electronics industry from David Manners, Senior Components Editor on Electronics Weekly.

Facebook Bollox Starts In UK

The Facebook bollox has started. A post last week – A Super-Scam – pointed up the unholy alliance between Goldman Sachs and Facebook to hype Facebook shares before their IPO.

 

Owing to US legal issues, GS have now stopped trying to sell Facebook stock privately to US investors. So they’re trying to sell it to non-US investors.

 

Yesterday’s

 Daily Telegraph carried a guest column by Joanna Shields, Facebook’s vp for EMEA.

 

“The 90′s were all about browsing, the 2000′s about searching but this decade is about discovering things through our friends and our relationships,” wrote Shields, “it’s a shift from the “what” to the “who” from the wisdom of crowds to the wisdom of friends.”

 

A quite excellent piece of bollox. Whose wisdom have we consulting up to now on issues like spouse-handling, jobs, investments, reading matter, choice of car etc etc?

 

On Monday, Shields gave a lecture to the British Venture Capital Association.

 

She talked about “the audacity of this moment in time.” “This stage,” she said, “is perhaps the most important stage of the internet’s evolution yet.”

 

“It is not longer the wisdom of crowds, it is the wisdom of friends,” she told them.

 

She talked about fast-growing social networking sites.

 

She didn’t talk about fast-shrinking social networking sites like:

 

Friends Re-United (bought by ITV for £175 million and sold three years later for £25 million);

 

MySpace (bought by News Corp for £375m which sacked half it staff last week);

 

Bebo (bought by AOL for $850m and sold two years later for $6.5m).

 

Incidentally, Shields was CEO of Bebo at the time it was sold to AOL.

 

So beware:

 

Social sites depend for their success on the young. The young giveth and the young taketh away – their loyalty as fickle as shifting sands.

 

Anyone foolish enough to invest in a business which lives or dies by the fashion whims of the young deserves whatever they get.

 

Despite this admittedly high-standard of bollox

Tags: british venture capital association, facebook, goldman sachs, social networking sites, unholy alliance

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22 Comments

  1. David Manners
    January 25, 2011 18:06

    Brilliant, Sceppers, I like it. Long live GOM.

  2. David Manners
    January 25, 2011 17:08

    The evidence of social networking is that the popularity of the sites waxes and wanes, Frank. FB is waxing, MySpace, Bebo and Friends Re-United are waning. I think the monetisation of FB has little to do with financial facts – it’s all to do with how much Goldman Sachs can hype the stock before FB goes into its wane cycle.

  3. David Manners
    January 25, 2011 16:56

    The only reason I can see for investing in FB, Geoff, is fear of being left out of a money-making opportunity. I believe rich people hate to think they’ve missed a chance to get richer, and fund managers will be penalised if they pass on an investment which turns out to be a huge winner. So there’s psychological pressure to invest just from the fear of what will happen if you don’t. And, as the level of bollox ratchets up, so does that psychological fear.

  4. January 25, 2011 14:01

    Luv the Bollox metering David – spot on stuff.
    I am not on Facebook and here’s why; Privacy and Money do not mix, especially when the money is measured in the billions of dollars. In order to eventually meet shareholder expectations FB will have to monetize even more of its one and only asset – yours an my information (OK not mine I’m not there).
    I think what will kill FB will be it’s willingness to sell our private information. At some point the user base will wake up and realize they’ve sold their lives. Also remember this – there is no single global legal jurisdiction to take care of our information for us – and virtually no recourse through local government of any consequence to a vast global empire like this. So the only recourse will be to abandon FB for those that eventually decide they care enough. Or to fill it with stuff that is clearly not correct and accurate – ask any kid, they already do this….so Mr. Advertiser how much veracity will there be in that data in 5 – 10 years time do you think?
    Some analysts say that’s the way of the world today and us older people need to wake up.
    I say I have greater faith in humanity.
    Perversely FB’s one route to ensuring they have a chance to avoid the privacy issue will be to remain private and thus avoid unrealistic shareholder pressures. So why would you invest in FB exactly?

  5. Frank
    January 25, 2011 13:37

    The real question is: what is the absolute revenue opportunity WW for social networking and how much can FB own?
    It’s likely that they can own a big portion but it’s not clearcut as they can own the whole of the world, there is plenty of competition in geographies other than the US and Europe.
    The next thing is – how can they really monetize all those eyes on screens in to revenue ads? Again, not as clear as Google’s model – if it’s all about the wisdom of friends why would you look away from what your friends are posting to prefer a paid ad?
    You’ve got to give to to Zuckerberg, he obviously is a very smart guy, he won’t have got this far on such lightweight notions if he wasn’t.

  6. Sceptic
    January 25, 2011 13:07

    Re- Pensions.
    I hope so too Greg.
    Let’s look at some FB basics.
    Do they make anything I can ‘hold’ or ‘live in’ or ‘work at’ ? No.
    Do they provide me weith news or entertainment ? No.
    Is it owned and run by a smart-arse college kid who diddled his mates ? Yes (allegedly).
    Would I rather be in the pub than engaged in this level of nauseous so-called ‘social networking’ peddled by these charlatans. Yes – any day of my miserable life.
    Is this column set to become the sounding post for the grumpy old men of the electronics world ?
    I genuinely hope so.
    A bientot.
    Sceppers

  7. David Manners
    January 20, 2011 21:17

    I think you’ve hit the nail absolutely fair and square on the head, greg. With GS anonuncing latest quarter profits 50% down today, they must be desperate to make fat profits again and that, as you say, leads to ever more dodgy deals, which leads to ever more blatant bollox, and that leads to a phone call from the SEC,

  8. greg
    January 20, 2011 21:03

    David, the bollox is becoming more blantant because I think maybe we’ve entered a period where standard stock investments are not going to generate the profits the investment bankers now consider ‘normal’. There looking for 20% or more profits all the time. Assuming investment cash is free.. if I currently invested in ebay with a P/E of 15 and stock prices track earnings I would make a respectable 6.4% each year, a bit more than the local bank but a bit riskier… the way its supposed to be. If facebook is 1:100 I would only make 1%.. theyd need to raise earnings over 6x to get on par. That is unless whats pushing the price up is hype!.. so Goldman are now in the hype and screw game. Create a crazy investment price, sell those investments to ‘clients’ at a premium in private, then bugger off after ofloading to the average investment community before the whole lot crashes. Sounds alot like subprime. I certainly hope our pensions are not being managed by these guys.

  9. David Manners
    January 20, 2011 19:49

    Good point, greg, i seem to remember that at the depths of the financial crisis Buffett lent an enormous sum to GS on onerous terms including a very high interest rate and convertible into GS stock on generous terms to Buffett. When GS got effectively bailed out, I expect the GS share price zoomed and maybe it was then that Buffett converted his debt to equity. But I wouldn’t know if he had been a large GS shareholder before all that. As to the valuation, you’re right, it’s crazy, and that, presumably, is why GS and Facebook have to spout all this bollox to try and justify it and trap the suckers.

  10. greg
    January 20, 2011 17:50

    When looking at Goldman and Buffet its interesting to note that Berkshire is Goldmans largest stock holder!
    I think the problem is not so much that Facebook is a bubble but simply that it has been wildly overspeculated and over priced.
    If you were going to buy a small business – well if I were going to buy one I would expect to pay between 2-4 times revenues. Ie if I were buying a gas station that pulled in 100K/year I would pay between 200K – 400K. That would sound reasonable.
    The problem with securities is that they trade at crazy multiples well beyond earning capacities. IE facebook earnt about $2bn last year but current valuations are over $50bn or about 25x revenues.
    But thats not the real story – if you were buying that gas station that pulled in $100K a year but after expenses/taxes you only made $5K a year it doesn’t look like such a good deal. This Price earnings of $200K for a $5K earning potential gives a P/E of 40X. You wouldn’t touch it. Facebook is only supposed to have earnt a couple hundred million after expenses so you are talking about a P/E multiple of 100′s. Completely crazy – there is no hope of real money being made.
    Any normal person would think there would be accounting rules to stop this kind of craziness but there’s none in sight and the general trend over decades is for P/E’s to steadily increase. Its just another good way for the financial service sector to ‘manufacture money’ without regulation.

  11. David Manners
    January 20, 2011 14:52

    The sad thing about the GS-Facebook nexus to me, Malcolm, is that GS could have been extinguished like Lehmann if it hadn’t been for the US taxpayers’ bail-out of AIG and other institutions. But instead of showing social responsibility in return, GS is hyping an economically unproductive company to make speculative profits. And this is a week or so after being fined $550m to settle fraud charges for encouraging clients to put money into an investment when GS knew that a hedge fund was betting agaisnt the success of that investment and GS did not reveal that fact to its clients. The financial crisis has opened all our eyes to what investment bankers do – and it looks sometimes horrible and sometimes illegal. The social justification for the role of banks is to provide capital for productive industry. If banks ignore that justification, then governments should look at other ways of funding industry and leave the banks to sink giggling into oblivion.

  12. David Manners
    January 20, 2011 14:41

    I agree that consumer electronics is an excellent example, The Baron, of an industry living or dying by the whims of the young. But in consumer electronics bollox is only half the story- the look and feel and functionality of the products is all too obvious to everyone. The Facebook hype ‘the wisdom of friends’ etc seems to be 100% bollox to me. The only reason to invest in Facebook is the growth rate of the advertising revenue it attracts. And we all know what will happen to the growth rate of that revenue stream when the next great social networking site grabs the attention of the young.

  13. January 20, 2011 13:54

    I agree David … it’s all snake oil by another name and with bricks and mortar. Robert’s point is wrong too, Spain/Ireland (and Dubai) was snake oil too … cheap money and overbuilding … not bricks and morter per se. Amen to the Bollox meter :-)

  14. David Manners
    January 20, 2011 11:29

    Google had a value proposition, FTM, when it came out, everyone realised it was streets better than existing search engines. Does FB have any intrinsic superiority to any other social networking site? Many of the ‘friends’ people gather on Facebook aren’t people they’ve ever met. I wouldn’t want to ask such a ‘friend’ for advice. But my main reason for dismissing FB as a bubble is the bollox-meter – the more rubbishy the argument used to sell something, the more likely it is that the thing isn’t worth buying. And the arguments for investing in FB rate high on the bollox scale. One other thing – Warren Buffett invests in railroads, GS invests in FB – is there any more telling contrast?

  15. The Baron
    January 20, 2011 09:43

    > Anyone foolish enough to invest in a business
    > which lives or dies by the fashion whims of the
    > young deserves whatever they get.
    Wot, like consumer electronics?
    (Add smiley face here for the parser-impaired who need blatant cues to infer intended meanings.)
    The Baron

  16. Dick Selwood
    January 20, 2011 07:50

    Presumably Goldman has to play these games to top up the $10bn bonus pot.

  17. FTM
    January 20, 2011 01:49

    Well, if I wanted to find out the etymology of “bollox”, I would use Google. If I wanted to buy a new mobile phone, I would rather ask my friends. The asking can be done using FB, although personally, I wouldn’t do that (since I’m one of the endangered guys that doesn’t have a FB account).
    Now if you are entrusted to figure out how to spend / spread your ad dollars, where would you go?
    FB’s $50B might or might not be bollox, but what Google throws up as search results is not always something worth writing home about.
    Like someone recently said “Search is the new curation is the new search”. Right now, Google search is still at the top, but at the tip of a potentially, slippery downward slope. FB, on the other hand, is at the bottom, but climbing up a hill of mega bucks. Goldman Sachs is not a saint, but FB is not stupid.
    David, just because you and me don’t use FB, let’s not conclude that FB is a bubble. Even if it is a bubble, the advertisers are lusting after it. In business, the only truth is money, and FB is not bad with money at all.

  18. RobertI
    January 19, 2011 23:21

    “Bricks and mortar”? No, no, and thrice no! The Irish and Spanish economies were fueled by housing booms/bubbles, and it has not done them a lot of good, has it? Nor did those damn yankees and their NINJA mortgages!
    But, I concede, land is usually a good long-term investment, as not much is being made, and the tendency is for population to increase. But beware of coastal areas liable to flooding when sea levels rise.
    My advice: “Lay not up for yourselves treasures upon earth, where moth and rust doth corrupt, and where thieves break through and steal…”

  19. Dick Selwood
    January 19, 2011 21:57

    Same guys hyping Facebook are talking up the ARM share price, because of the Microsoft announcement.

  20. David Manners
    January 19, 2011 21:03

    I know Mike, I’ve seen several contemporaries lose their pensions – or a big chunk of them – because the funds have been foolishly invested. There’s only one safe answer – bricks and mortar.

  21. Mike Bryant
    January 19, 2011 20:48

    The problem is some of those fools control our pension funds !!!

  22. Chris London
    January 19, 2011 16:53

    Spot on!

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