Sunday, February 5, 2012

New Facebook Investors Will Be Bagholders

You've probably heard all the excitement lately over the news that Facebook will be going public - on Wednesday they filed their IPO prospectus with the SEC. They are soon to be trading on the NYSE and the company is predicted to be valued up to $100 billion. This means that thousands of investors are going to be putting up their money and betting on the future of Facebook, hoping to score big returns.

Google went public back in 2004 and anyone who bought Google shares then is doing very well right now with their return on investment. But is Facebook another Google? Does it really have the staying power and growth potential?

We see it more as another Myspace. And social networking sites like Myspace and Facebook don't have the type of staying power that search engines like Google do. They're more like a fad or fashion trend, although they can definitely stay popular long enough to rake in some dough. But these sites have a life cycle where they reach their full potential within a few years, and then as the excitement wears off and their users get bored, inevitably something else comes along that becomes the next big thing. And right now we're at the very end of the peak for Facebook's popularity. It has already had its been run, the big run is not in the future.

Young people are always what drives the next hot site, the next innovation. Facebook is still "cool" right now, but how about in a couple years when a whole new generation views Facebook as their mother's social networking site? It's going to happen, and it won't be long before it does.

Facebook is about to get a shitload of money though, and it definitely won't go down without a fight. Expect to see a bunch of new features and services rolled out over the next few years and witness their attempt to turn it into something much more than just a social networking site - just as Google became much more than just a search engine. But at the same time they're rolling out these new features, they're also going to be facing pressure from investors to monetize their popularity. Investors won't just be flooding in money to Facebook to be nice, they're going to want to see big revenues coming in. So at a time when Facebook is almost at its "old and stale" phase of the life cycle, they're going to be bombarding their members with annoying ads and other ways they can get money out of them. It's only going to make it that much easier for people to switch to the next big thing when it comes along.

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