Posts Tagged ‘Social Media’

Last week Wellington hosted the beer appreciators shindig of choice – Beervana.

No glorified booze-up this, Beervana is the country’s largest craft beer festival and features over 250 craft beers. With brews including the likes of Day of the Dead, Coffee and Fig Ale, and Hop Zombie, it’s clear evidence that we’ve moved on from the bland brewing duopoly that I grew up with.

Sadly, come the next morning I found it delivered the same sort of hangover. Also currently suffering a hangover are the thousands of people who bought into the Facebook IPO. Right now, for every dollar investors put into the social network three months ago they have about 56 cents.

In July the tale of value destruction got worse, when Facebook revealed in its quarterly filing with the US Securities and Exchange Commission that around 83 million of its user accounts may be fake and another 45 million may be duplicates.

Nominally Facebook has around 950 million members, so the news that over 10 per cent of that customer base may be imagined rather than real is likely to get the market’s full attention. Sure enough Facebook’s already ailing share price plunged faster than a neckline at a cougar bar, bottoming out at $19.88 before recovering to around the $21 mark.

The most anticipated IPO of the last few years, Facebook had a strike price of $38 but within two weeks it was south of $30 and continued an unsettling slide ever since.

The good news is that Facebook is keeping good company. There’s been a gaggle of American internet IPOs over the last two years and most of them have been diabolical performers.

The worst I have seen is group buying website Groupon which is now down more than 60 per cent on its listing price. Not far behind is game-provider Zynga and online radio company Pandora which are both more than 40 per cent down on listing price. Meanwhile review website Yelp’s shareprice has lost 20 per cent of its value. Taken as a whole you could be forgiven for thinking the clock had turned back to the dotcom crash of 1998.

There has been one standout web entrant to the listed market world however, and that is LinkedIn. Often incorrectly described as “Facebook for grown-ups”, LinkedIn is part recruitment service and part business development tool.

Unlike Facebook it uses a “gated-access” model. This means contact with a business professional requires either an existing relationship, or the intervention of a contact to make the connection. Significantly LinkedIn has signed up to EU’s International Safe Harbour Privacy Principles, privacy not normally being seen as Facebook’s strong suit.

And whereas Facebook is finding it challenging meeting financial targets, LinkedIn just reported stellar second quarter results. Revenue was up 89 per cent compared with the same period a year ago and earnings were $50.4 million, compared with $26.3 million for the second quarter of 2011. Unlike Facebook’s dependency on advertising, LinkedIn has three revenue streams – its employment business, its marketing business and a premium subscription business – providing useful income diversification.

Even at its current $20 level significant doubt remains at what is reasonable value for Facebook. The kicker is price to earnings ratio (PE). At $20 Facebook is trading at about 30 times the company’s estimated earnings for next year. By comparison Apple, Google and the newly renovated eBay are trading around 15 times next year’s predicted earnings.

But there could be more bad news for Facebook, this time from within – specifically, from the 1.7 billion shares owned by staff and insiders which have been “locked up” by a post IPO trading blackout. From August to November those blackouts will lift, meaning for the first time they will be able to sell. These are staff who until now have had paper wealth in an illiquid company, so there is likely to be good appetite to convert paper wealth into the real stuff.

The problem is simple supply and demand economics. As these shares get unshackled supply is about to go through the roof, this at a time when demand is at an all time low, as measured by share price.

The kicker here is the extent of that supply. Back in May Facebook listed with 421 million shares being made available to investors through the IPO. Over the next three months four times that number of shares will be available for trading.

Looking at it that way the problem isn’t so much a hangover for existing Facebook investors. It’s more about overhang. Specifically the huge overhang that a four-fold increase in supply will bring. Perhaps next year at Beervana we might see a Facebook Fizz – an expensive little drop with sweet frothy head, but with little underneath.

Mike “MOD” O’Donnell is a professional director, author and eCommerce manager. His favourite tipple is the Garage Project’s Pernicious Weed.


Read Full Post »

Late in 1984, Irish rock group U2 released its experimental album The Unforgettable Fire and started a world tour to promote it.

The first show was at the Christchurch Town Hall in August, so some mates and I bunked school and hitch-hiked up from Timaru to catch what was then considered an “alternative” rock act.

Frontman and vocalist Bono Vox absolutely owned the stage, building the crowd into a frenzy, then gently calming them down. Bono ended the encore with 40, U2’s own interpretation of the 40th Psalm – a chantingly melodic song, guaranteed to soothe the most savage breast.

I remember thinking that the mullet-topped Irishman was a pretty canny individual, carefully planning his set list to discharge a chilled and well-behaved crowd of 5000 out onto Kilmore and Colombo streets.

Twenty-eight years later it appears he’s still canny. As a result of Facebook’s forthcoming Initial Public Offer (IPO), Bono will become a billionaire, owning 1.5 per cent of the social network.

In 2009 Bono, though his private capital vehicle Elevation Partners, bought his share for US$90 million ($108m), a decision that will make him the world’s richest rock star. He’ll be joined by Facebook backers and senior managers who will also become instant billionaires.

The list also includes Peter Thiel, the man who is quoted as describing New Zealand as an investment “utopia”, and supporting that belief with his chequebook, buying solid whacks of online accounting provider Xero and internet cable provider Pacific Fibre. Assuming the float proceeds, Thiel’s 2.5 per cent will value up at around $2.8b, and join returns he made from PayPal, the company he co-founded and sold to eBay.

As part of Facebook’s IPO announcement, founder Mark Zuckerberg tabled a letter to potential shareholders. Some of the letter contains PR baloney like “we don’t build services to make money” and “Facebook was built to achieve a social mission”: these sentiments seem so much at odds with public attitudes to the social media giant and they fail to resonate.

However, within this self-aggrandisement there is some good oil, particularly a section called The Hacker Way.

Rather than anything to do with breaking into computers, hacking according to Zuckerberg just means building something quickly or testing the boundaries. It’s a belief that something can always be better, and that nothing is ever complete.

Hackers try to build the best services over the long term by quickly releasing in increments rather than trying to get everything right, all at once.

Ad Feedback Zuckerberg also references two in-house philosophies: “Done is better than perfect” and “Code wins”. The first is a reference to the import of learning through small iterations rather than big rollouts. The second refers to the value given to live computer code, rather than days of debating about theoretical programmes. In other words, the value of software and actual experience, rather than air-ware and endless meetings. It’s meritocracy at its simplest.

If you look at some of the good stuff that New Zealand business has delivered over the last year, you’ll find The Hacker Way has been used to good effect. Rod Drury used it at Aftermail, the company he founded in 2003 which took everyday email content and morphed it into a relational database, unlocking considerable value along the way. Rather than focus on reasons you might not be able to do something, Rod worked out what his team could do, all on the smell of an oily rag.

Jeremy Moon embraced The Hacker Way in lugging his first generation Icebreakers around North America, literally sticking his foot in the door of stores, then focusing on any product disconnects and quickly turning around Icebreaker versions 2.0 and 3.0 in double quick time.

The guys at Wellington-based Set QR also displayed The Hacker Way in taking something generic and kissing it with brand. QR codes are the small square digital boxes which a smartphone will scan and then send you to a website. Set QR hijacked these generic boxes and overlaid a designer brand that makes them instantly recognisable, even without a scan.

Standing against this growing number of entrepreneurs and start-ups employing The Hacker Way, are the majority of large organisations – both public and private – who don’t or can’t. The New Zealand Government invests $2b a year in technology, while private sector investment is probably several times this. And to date, The Hacker Way isn’t that common among these heavyweights of Kiwi technology spend.

Perhaps one unlikely but useful outcome of the Facebook share bonanza is that more local companies will be motivated to understand the principles of The Hacker Way rather than seeking to boil the ocean with their technology projects.

The question is whether our tech spenders accept the challenge that Bono sang about in the Christchurch Town Hall and “Sing, sing a new song”.

Read Full Post »