Quote – Ben Rowe

I asked marketing polymath Ben Rowe his thoughts on Facebook in 2008 and if it is going to grow or decline…

Response

“Facebook is so 2007…. it’s just p2p spam. I reckon facebook is going to die a fairly fast death this year.”

Sure the jury is still out, but it wouldn’t be the first time Ben’s predicted the future of a brand or launch. It does seem that there was something very wrong when Zuckerberg referred to his ‘army of viral marketers’ he forgot one thing…. viral marketing is always done by people, not companies. Abuse them and lose them.

The gaping void view in December was this

gaping-void-zuckerberg.jpg

I still think facebook is a great platform (especially the app’s component) which needs to take a few steps back before everyone disappears. It will be interesting to see how this one plays out.

Business valuations & Facebook

The recent deal where Microsoft took a 1.6% stake in Facebook for $US240 Million valued the company at $US15 Billion.

 

Here’s some numbers:

  • Facebook has a revenue of approx $100m per annum. 

  • Although profit is currently undisclosed, even a generous 50% profit on sales margin would result in a diminutive profit of $50 million.

  • This would result in a PE ratio of 300 times!

  • Which means, it will take Microsoft 300 years to pay back their investment.

Start up blog view: This could be the most ridiculous sale price anyone has ever paid for a company.

Has everyone forgotten about these start up web 1.0 heroes of the late 1990’s and early 2000’s:

kozmo.com

Global crossing

Worldcom

govWorks.com

eToys

Boo.com

Pets.com

theGlobe.com

Where Investment banks and reputable companies such as Microsoft paid exorbitant  prices for many now non-existent companies with zillions of page views, sessions and ‘potential’?

It’s different this time, right?

At some point in our journey we all have to value a business. So we must remember the following:

When selling: Potential, emotion and short memories can get you a great price

When buying: Forget ‘potential’ and focus on ‘current’ earnings and investment payback period.

Bonus conspiracy theory: Microsoft really bought the personal information of the 42 million active Facebook members.

The Intelligent Entrepreneur

The Intelligent Investor by  Benjamin Graham is by far the greatest book on investing ever written”….

 

Qualification of this statement is clear when Warren Buffet the worlds greatest investor and second richest man was the orator of the quote.

 

Here’s why it could also be titled The Intelligent Entrepreneur.

We cannot be great entrepreneurs unless we understand fundamental finance and investing principals.  

This book holds all the keys to money and investing. Principals entrepreneurs ought know to play the money game. Simple principals which again and again prove true at the culmination of each investing bubble. The 1999 Dotcom boom & bust the most recent example. Make sure you get the version with the updated commentary by Jason Zweig pictured below. It provides modern day examples of the principals.

 theintelligentinvestor.jpg 

Heads up to Mr Facebook, Mark Zuckerberg. Advice from the intelligent investor would be for the owner to sell, and any buyers to reconsider. To have a business which justifies the billion dollar valuation would require approximately $100m a year in net profits. I’d guess Facebook is quite a way off when its turnover is currently $100m.

 

Warning: This book is an arduous read. With over 500 pages to wade through it takes its toll. But the lessons there in you’ll hold for a business and financial life time.