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business newsGoogle Plus Completes the Bear Case for Facebook
By
Michael Comeau
Jul 12, 2011 9:30 am
More people on Google Plus means less clicks on Facebook ads. Less clicks means a counterweight against future improvements in the click-through rate.
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If it appeared that I was serving up a superficial troll job to drum up page views, then think again, because things have gotten darker in the past month.
The closest thing Facebook’s ever had to a true rival was MySpace. And there’s no doubt as to who won that fight. News Corp. (NWSA), which bought MySpace for $580 million in 2005, just unloaded it to an investor group for only $35 million.
However, there’s a new kid on the social-networking block ready to take a swing at Facebook, and its name is Google Plus (GOOG).
Prior to the late June emergence of Plus, Google was dead in the social-networking world following the flop of the perplexing Buzz.
Google Plus is another story altogether. I actually don’t get what’s so great about it. To me, it just seems like a simpler, cleaner Facebook with some different organizational tools.
However, it’s new, it’s hot, and people want in. Why do they want in? Probably because Google’s keeping people out.
Google very smartly limited the number of invites into Plus, and that’s gotten people talking and going cuckoo to get invites from friends or strangers. In fact, the first batch of invites was used up within 48 hours, resulting in same kind of scarcity-based viral marketing that helped launch Gmail, and ironically, Facebook.
This excitement means that Google is officially in the social-networking game, and that’s a major, major problem for Facebook.
And that’s not all that’s gone wrong for Facebook.
In my last piece (linked to above), I noted the following:
Relative to population, Facebook penetration is very high in developed countries like the US, UK, Canada, Spain, Italy, and France. This lends credence to the idea of slowing, or even potentially declining user counts in some of these markets. At some point, you just start running out of bodies.Mark Zuckerberg more or less confirmed such a slowdown last week when he said the following:
The metric of the last five years was about user growth. The driving narrative of the next five years is not about wiring up the world, but what cool stuff (apps) can you build with this wiring in place.
We did not report 750 million because we do not believe it is the metric.
If this statement doesn’t scream "slowdown," then I don’t know what does.
Any revenue model for Facebook can be boiled down to something resembling Number of Users x Revenue Per User = Revenue.
So we heard it straight from the big boss man himself -- the "Number of Users" portion of the equation is under attack.
Let’s not forget, plenty of high-flying tech stocks have historically bounced around like crazy based upon user/unit/subscriber numbers. Salesforce.com (CRM), Netflix (NFLX), Sirius XM Radio (SIRI), and Research in Motion (RIMM) are just a few. When Facebook does go public, the media will obsess over those user numbers even more than they do now.
And on the "Revenue Per User" side of that equation, Google Plus is just getting warmed up.
It works like this: Every minute spent on Google Plus is one that could have been spent on Facebook. That means less clicks on ads. Less clicks means a counterweight against future improvements in the click-through rate. This effect gets bigger as Google allows more people on Plus.
Additionally, Google Plus doesn’t have ads on it yet. As soon as those ads start appearing, Google will start making back some of the ad market share that’s drifted from its own Adsense business to Facebook.
Some may argue that there’s room for multiple gorillas in this jungle.
That may be true, but when people are talking about Facebook valuations in the $75 to $100 billion range, you’ve got to ask: Do numbers of that magnitude reflect a potentially serious slowdown? A slowdown that appeared even before Google Plus popped into existence?
And does Facebook deserve to be valued in the range of corporate behemoths like Qualcomm (QCOM), Amazon (AMZN), McDonald’s (MCD),and Disney (DIS)?
It all adds to up something we couldn’t have conjured up just a year ago -- a bear case for Facebook!
Not long ago, I would have bet my eyeballs on a blockbuster Facebook IPO. I’m starting to think twice.
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No positions in stocks mentioned.
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