Facebook: Standing upto formidable expectations
Facebook’s mid May 2012 IPO is pegged at $103bn. Given that FB made $1 billion revenue last year, that 103X Facebook’s earnings. Assuming a 50% increment in revenues this year and an equal amount in the year next, It’s about 70X this year’s estimated earning and about 50X next year’s estimated earnings. To put that in perspective, it’s about 1/2 of Google’s market cap, Facebook’s revenue, meanwhile, is less than 1/10th of Google’s revenue and Facebook’s revenue, is about 1/3rd of Google’s free cash flow.
Apple and Google, both tech giants trade with the following multiples.
103X looks very very steep in that perspective and it is quite a challenge to keep the growth engines revving at such pace especially with decelerating revenue growth. Facebook investors are really counting on some massive cash flow growth in future years. Given that Facebook has registered profit and revenue decline in 1Q,2012, the valuation just proves that Facebook is going to have tough time meeting upto the market expectations of earnings.
To make matters a little interesting, Facebook‘s CEO Mark Zuckerberg has clearly said that Facebook’s business is designed to support its social mission, and not vice versa. Of course, Facebook appears to be just at the beginning of “monetizing” what will soon be more than 1 billion global users. Many believe that Facebook has grossly underinvested in its monetization over the last few years and that even a little more focus on this could produce huge results.In addition to the products it has already rolled out, Facebook could well launch other huge products in the future, such as a search engine that competes with Google, or a distributed ad network that competes with Google.With respect to both of those businesses, Facebook’s vast number of users and vast network of “like” buttons all around the Internet could prove to be major competitive weapons.
Facebook could also take on a position of being “user identity” on the internet – a quasi UIDAI. Facebook is quite really there in terms of making Facebook logins as the alternate logins in many other internet destinations. Leveraging social discoverability and making Facebook the generic on Internet is key for Facebook’s run through a successful listing and beyond.
With 500 million of the 900 million users logging into facebook from mobile, and smartphone phenomenon on the rise, Facebook looks very brilliently poised to take advantage of the huge numbers in mobiles. If Mobiles be the access windows of Internet, Facebook has a pretty strong position on mobile usage which should drive growth.
Just how the numbers would stak up is anybody’s guess out there.
Facebook’s smartphone Buffy isn’t a smart idea afterall
Why Buffy could be a problem child for Facebook?
Buffy: Chances are that this name would remind you of the Vampire Slayer, as it did with me when I first heard of it. Wonder who Facebook had on its mind as the Vampire for its first ever smartphone called Buffy. Possibly it’s a combination of Google, Apple, Microsoft, Yahoo, Amazon and more. HTC will be producing the Buffy which will deeply integrate the social network into its platform. So then, after all these years of going round and round mobiles and smartphones as the delivery platform for their social services, Facebook finally is all in!
Slowly but surely all these big players are beginning to acquire, buy or subcontract all elements of the delivery value chain – and become the Walmarts of the digital world. Walmart puts all the shopping needs behind one door for the customer. Apple wants the customer to buy one iPhone and spend all his time in its virtual app world. Google’s the same way. To compete, Facebook needed a piece of hardware. Facebook has the liberty to choose between Android, Windows Phone or even create a new OS (WebOS anyone?). Facebook would obviously opt to heavily customize the Operating systems and store fronts and Android is a readily available choice to do that.
Globally, smartphones and tablets are converging at ecosystems as these become devices to primarily consume data from the eco-systems. Amazon’s success with the Amazon Kindle Fire Tablet is a shinning example and given the success of Amazon, Amazon is thinking of a move into smartphones. Given that Facebook has a been building an apps based ecosystem and is becoming the de-facto web standard OS, Facebook nursing intentions in the smartphones and tablets is a logical extension of their clout to the physical world of devices.
However, as Facebook pursues building a smartphone, it risks alienating far more important partners – a lesson they should have picked up from Microsoft’s Zune fiasco. Arguably, the Zune is one of the most expensive failures that Microsoft has ever had, all because it betrayed its partners and then under-resourced the effort.
Is it really going to be able to promote a piece of hardware? Does it really want to go to war with Apple and every other device manufacturer? Right now Apple, Microsoft and others spend lots of time on Facebook, but they aren’t likely to continue if they view Facebook as a potential competitor. Facebook should be focused on building the best Facebook app for every major platform. Going into competition with these platforms and phone providers could alone turn them into the next Microsoft Zune or Kin. This may partially explain why Microsoft is thinking of building its own social network all of a sudden.
Facebook may be dreaming of the upside of being the next Apple, without considering the collateral damage and opportunity cost that is more likely to make them the next Zune/Kin. However, its equations with major platform operators is destined to sour with the hardware approach no matter how much parity Facebook provides to the deal.
Facebook & the four degrees of separation (Vasudev Kutumbakam)
Vasudev Kutumbakam (The Whole world are descendants of Vasudev (the Hindu God Krishna)). Facebook revisited this premise and has taken it a step further by actually measuring the degrees of separation between two unknown individuals. In the 1960s, social psychologist Stanley Milgram’s “small world experiment” famously tested the idea that any two people in the world are separated by only a small number of intermediate connections, arguably the first experimental study to reveal the surprising structure of social networks.
With the rise of modern computing, social networks are now being mapped in digital form giving a hugely scalable, accessible, immediately personal and almost idiotically simple networking platform.
The idea of ‘six degrees of separation’ — that any two people are on average separated by no more than six intermediate connections — was first proposed in 1929 in a short story by Hungarian author Frigyes Karinthy, and made popular by the John Guare play and movie, Six Degrees of Separation. The idea was first put to the test by Stanley Milgram in the 1960’s. The idea was first put to the test by Stanley Milgram in the 1960’s. Milgram selected 296 volunteers and asked them to dispatch a message to a specific individual, a stockholder living in the Boston suburb of Sharon, Massachusetts. The volunteers were told that they couldn’t send the message directly to the target person (unless the sender knew them personally), but that they should route the message to a personal acquaintance that was more likely than the sender to know the target person. Milgram found that the average number of intermediate persons in these chains was 5.2 (representing about 6 hops). The experiment showed that not only are there few degrees of separation between any two people, but that individuals can successfully navigate these short paths, even though they have no way of seeing the entire network.
While 99.6% of all pairs of users are connected by paths with 5 degrees (6 hops), 92% are connected by only four degrees (5 hops). And as Facebook has grown over the years, representing an ever larger fraction of the global population, it has become steadily more connected. The average distance in 2008 was 5.28 hops, while now it is 4.74.
Interestingly enough, the study also proves that individuals are both well-connected in the sense that you can reach anyone from anyone else in a relatively short number of hops, but at the same time, they are very locally clustered, with the vast majority of connections spanning a short distance. The study, found that 84% of all connections are between users in the same country. But this isn’t the only dimension along which people tend to cluster. The study concludes that People tend to have a similar, albeit typically smaller, number of friends as their neighbors, and tend to be about the same age. Somewhat surprisingly, even for individuals aged 60, the distribution of their friends’ ages is sharply peaked at exactly 60.
Facebook’s mobile ambitions could pose a threat to Microsoft, Google and … possibly Apple
A stat that caught my eye was that every 8th minute on the internet is spent of Facebook. Increasingly, Facebook is becoming the connective tissue between users, websites and apps, and the social circles.
Facebook is increasingly becoming the sort-of web equivalent of an operating system, including its own application platform. This whole web OS thing seemed like it was going to be Google’s role, but right now, Facebook seems to be making bigger strides.
To take it a notch higher, Facebook intends on becoming more of a mobile platform, and not just an app or service. Towards this Facebook has acquired the HTML5 “app delivery network” Strobe. To have maximum value, Facebook needs companies building on top of it in mobile the way they do on the desktop web.
In doing this now, Facebook can have the effect of running both Google and Micrsoft obsolete.The more that Facebook and the Mobile web consume the user’s time, attention, and effort for communication and entertainment, the less will be the need to be using a device that runs Windows, which is the old way of organizing apps and web resources. In other words, Facebook is actively making Windows irrelevant.
Google with its Android platform is the next stop for Facebook. Whether it acquires WebOS as its medium for challenging Android or build its own platform on the Android, Facebook has the capacity of taking weaning users away from Android. And Facebook has decent enough traction amongst device makers, app makers and others in the eco-ssystem to give Android a run for its money.
This also takes Facebook a step further from challenging Apple at its turf. Presently, Apple makes money from selling hardware — iPhones, iPads, Macs, and iPads. All those apps — including Facebook, the most popular iPhone app of all — are there to grease the wheels and sell more hardware. Facebook is currently not in the business of hardware but all this then takes it to a position, where the next step could be making own hardware and voila! we have a direct Apple competitor.
New Revenue Models Augments Social Gaming.
India’s gaming industry is set to grow from Rs 4 billion in 2007 to a projected Rs 14 billion in 2011. India’s Social Gaming Revenues would top $1B in 2011.
Social gaming already is big business in Facebook and the top social gaming companies are making anywhere from $60 million to $ 1 billion per year on Facebook Games.
The stickiness and the traffic generated by Facebook games is the engine driving the social games economy
Of the 33 million Indians registered on Facebook (these form a third of the India’s internet population), an estimated 40% indulge in Social Gaming. That’s 13.2 million Indian’s engaging on Facebook as a portal. And a large and influential mass of people to be discounting for any brand based activity. Interestingly enough, Entertainment related brands which are more relevant to digital media are beginning to make their presence on Facebook. Two interesting instances are
1. Launch of Don2, the social game on Facebook in parallel with the Don2 movie featuring Shahrukh Khan, Priyanka Chopra, Lara Dutta, Kunal Kapoor amongst others. To leverage on the huge popularity of SRK, and the legacy of the Don movies, the Don2 game involves dark and gritty 2D art style gaming with Photo-realistic representations of locations, characters from the movie, weapons and vehicles, Interactive mini-games with multi-layer gaming to unlock special items, weapons and missions with friends, Leader-board system, Global and social ranking. The games include Real and virtual goods received as gifts which could be used as virtual and real monies. The gaming model closely resembles a mash up of Cityville and Mafia Wars. In the true social essence the initial draws will be based upon Facebook Ads, post which the viral effect kicks in, which is fortified with awards and other meet and greet events.
2. Another global launch that is also being worked out through Facebook is the launch of Enrique Iglesias’s new Album through context relevant advertising through the Facebook’s No.1 game: Cityville. The effort is to drive traffic to the Album’s facebook page including the exclusive video and audio snippets of the album’s numbers. That’s a seamless way of integrating awareness, trial, likes and recommendations about Enrique’s new album across 73 million monthly users of Cityville. Earlier we had Lady Gaga’s Gagaville lord over Farmville for the same set of purposes.
These events are particularly interesting as means through which Social Games are evolving from just being a game to a engagement-led and experiential media for brands to talk to its customers. There would be more such integrations as we go forward. If at all, this medium underscores the importance of traffic and stickiness as pre-cursors to revenue generation mechanisms.
Social TV: New Avenues, Multi Billion Opportunities (Part II)
In an earlier post i had written about how “social” was changing the idiot box TV to a smart social TV. Taking that dicscussion forward, there are broadly three arenas where social TV is quickly gaining traction, and all three have the potential to become billion dollar businesses by themselves.
Interactive Television @ Interactive Advertising
Microsoft XBox showcases Interactive Advertising
Advertisers have for long being wanting to bridge the gap between TV Ad viewership and the stimulus based engagement/action around the brand commercial. The key was about bringing interactivity to TV commercials and tagging commercials. The commercial is just the starting point of a conversation around TV but it is not the be-all end-all as more and more novel methods of engaging the consumer through the TV, Web and Mobile medium are being innovated upon. Interactive Social TV is about helping customers find relevant programming by leveraging their social graph. In other words, this becomes a real-time feed to broadcasters on viewership, likes, customer responses and other real time user stimulus.The key here is interactive advertising which enables users to experience the brand better. Advertisers, programmers and distributors have dreamed of enhancing the customer interactivity because billions of dollars are at stake. Information of users, who have interacted with a commercial and who took action on it is key to greater ad-TG convergence. Until now, the only real metric has been TV ratings, and the promise of interactive TV has never reached scale.
A primer to smarter viewership choices: Social TV
Social TV guide: Matcha.TV
Social TV guides will empower viewers to make smarter choices and discover shows they never knew existed. By measuring what the users watched, what they liked, what their friends and social networks have recommended and what’s trending overall, social TV guides will make surprisingly-accurate suggestions. Facebook integration and back end behavioral recommendation algorithms is thus a path into the future of smart TV viewing, viewership and customer relevant targeting.
Second screens will augment the social TV experience
According to a recent Nielsen research, iPad owners spend more time in front of TV with their tablet than any other activity. Given that Tablets are predicted to increase its penetration, tablets and smartphones are becoming important second screen alternatives to augment customer experience. Second screen apps are thus becoming a natural extension of TV programming, both live and on demand. The second screen adds another path of interactivity for viewers who aren’t tagging, checking in, or clicking on TV commercials.
Social TV: How “social” is helping the idiot box evolve into a smart box? (Part I)
The idiot box is on its journey to becoming smart and as it happens there is ample push from Facebook, Google, Microsoft and Apple. Thereby Television is all set to become social. TV was always content heavy- however content discovery, connect to friends around that content, personal network based likes and recommendations is now making it increasingly social as well. Social program guides on TV are the future of content based television business. TV set top boxes are beginning to provide people the ability to interact with others on their TV screens when watching their favorite programs. In ways more than one Social TVs will be the game changers for Televisions with radical implications for the future of television viewing
Facebook is exploring tie-ups with TV providers to help their customers find relevant programming by leveraging their social graph. The social TV program guide enables real time feeds on what friends are watching and share [their] viewing experiences which get[s] people to become recruiters for TV shows. In other words, Facebook would provide a real-time feed to broadcasters based on their friends’ TV show likes and check ins. That changes the TV-viewing experience.
1. Facebook users have “Liked” various TV shows over 1.65 billion times. This statistic gives a good feeler of how TV content and programs are pseudo social in some sense already. Facebook now intends to take this social into being more actively social with real time updates and live streams
2. In July 2011, cable giant Comcast unveiled its next-generation Xfinity TV interface that includes Facebook integration. One of the features is called “Friend Trends,” which shows the content most popular among the viewer’s Facebook friends on Hulu, Netflix, the Web, and TV.
3. Comcast even built the Like button into its new cable experience, so viewers can Like a show straight from their remote control.
In addition to enabling television and social networking to be available via a real time interface, the set top box might allow people to preconfigure access to different social networks based upon channels on the television or certain time ranges. The ability to associate a specific channel with specific social network walls, contacts, or chat interfaces is interesting. It gives the user a unique experience of watching the game along with a dozen or so friends, each from the comfort of their homes.
Google+ ventures into online gaming. Facebook and Apple to feel the heat
One of my oft reservations about G+ and after its initial success has been the lack of games. Games have been have been huge sticking pads for Social networking sites such as Facebook. It increases the user time spent on the site and gives that much bigger a window for more ads to be served to the consumers.
With respect to that, Google+’s move into gaming should be a scare to both Facebook and Apple, the two leading next generation gaming platforms. Not with-standing the early success of Google+ and the fact that Google+ could use Google’s portfolio of internet based applications and services over the Gaming domain for more relevant and pertinent targeting, there are other factors that make Google+’s venture into gaming a point of discontinuity
1.Google is attempting to break today’s 30 percent cut that has become standard across both Facebook and Apple. Google will share 95 percent of the revenue from virtual goods sold with the developers and keep only five percent for itself.
2.Google is also interested in allowing games to be played cross-platform, meaning a person could pause their game on the Web and then pick back up in the same place on their phone. If Google+ games could run through the browser on the iPhone or iPad, it could undercut Apple on its own device.In that scenario, consumers would have to find a compelling reason to switch from playing games that are downloaded through the App Store to playing games through a Google+ experience.
3. Google’s partnership with Adobe will be a critical experience factor for users on Google versus Apple. Add to that a HTML5 integration in the horizon, Apple also has a reason to be wary of Google’s moves in online gaming.
Regardless, it should be comforting to developers who are uneasy with the control that either Apple or Facebook has from time to time. Developers will be looking to see if the Google+ game network can be as powerful as Facebook. One thing for certain is that they all can start off with a fresh slate. Not one is massively bigger than the others, like Zynga, which is larger than the next 15 developers combined.
The full list of games now on Google+ includes Angry Birds, Bejeweled Blitz, Bubble Island, City of Wonder, Collapse! Blast, Crime City, Diamond Dash, Dragon Age Legends, Dragons of Atlantis, Edgeworld, Flood-It!, Monster World, Sudoku, Wild Ones, Zombie Lane and Zynga Poker.
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