Category Archives: Irrational exhuberance

Social networking peaks

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From Creative Capital…

I just got a hold of the ComScore numbers for U.S. social networking sites, and it ain’t pretty folks. (See an abridged version of the chart below this post.) After peaking in October of 2007 with 71.9 million users, MySpace, the leading social network, has seen its audience fall back to around 68.9 million unique visitors. December saw no growth over November, though visitors were up 13% from last December.

More alarming are the engagement metrics. Since December 2006, when MySpace engagement peaked at about 234 minutes spent per visitor, time spent on the site has dropped consistently throughout the year. In December, time spent per visitor saw its biggest month-to-month drop, of about 8.5%, to 179 minutes per visitor per month, down from 196 minutes in November. That equates to a 24% year-over-year drop.

But the pain is not just a MySpace problem. It seems to be an industry-wide issue. The total audience of U.S. social networks seems to be stuck at a low-to-mid-single digit growth rate, while the engagment metrics are falling for just about everyone. Time spent on Bebo.com has been sliced in half over the last four months, while Friendster’s time spent has plummeted nearly 75% in the same time period. Overall, minutes spent per site fell 5% in December 2007 compared to the year-ago period….

More in that vein here.

Another facebook valuation

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From Jeff Jarvis…

A Deutsche Bank analyst says that a newspaper reader in 2004 was worth $964 a year. Today, that’s $500. Facebook’s 50 million active users translates to $300 per at that valuation. And newspapers are shrinking while Facebook is growing by 200,000 new users a day. A day. And those users spend an average of 20 minutes each day inside the site vs. 41 minutes a month on newspaper sites, says DB…

Facebook and the Groucho problem

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This morning’s Observer column…

Pssst … have I got a deal for you! Send me a cheque for £10 and I will sell you a 0.000001 per cent interest in NetworkerColumns Ltd, a privately held company which produces copious quantities of mildly irritating prose. I will then release a press statement announcing that we are both partners in a £1bn company!

Daft, isn’t it? Well, it’s exactly the same logic that has led the mainstream media to hail Facebook as a $15bn company – that is to say, the fifth-most valuable internet company after Google, eBay, Yahoo and Amazon. What happened is that Microsoft, after months of secret negotiations, announced it was paying $240m for a 1.6 per cent stake in Facebook. Multiply 240 million by 100, divide by 1.6 and out pops the ‘valuation’…

Social graph-iti

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The Economist isn’t impressed by the huge valuations currently being placed on Facebook. Neither am I.

Update: In the end, Microsoft valued Facebook at $15 billion.

Microsoft has paid $240m for a 1.6% stake in Facebook that values the hugely popular social networking site at $15bn.

Facebook spurned an offer from Microsoft’s rival Google, which was also keen to invest the site.

Microsoft will also sell internet ads for Facebook outside the United States as part of the deal that took several weeks of negotiating.

What’s surprising is how small the Microsoft stake is. This has to be about advertising rather than investment.

Skype earnings were, er, “a bit front loaded”

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From the New York Times…

BUDAPEST, Oct. 9 — In his first public remarks since quitting last week as chief executive of the Internet phone company Skype, Niklas Zennstrom said Tuesday that he had no regrets about his handling of the company but conceded that he might have tried to squeeze money out of it too quickly.

EBay, the online auction company that paid $2.6 billion for Skype in 2005, said last week that it would take a $1.43 billion charge for the service.

EBay has retained Mr. Zennstrom as Skype’s nonexecutive chairman. Michael van Swaaij, eBay’s chief strategy officer, will fill in as chief executive until a permanent successor is hired.

The write-down was widely seen as a concession that eBay had overpaid for Skype, but Mr. Zennstrom, a Swede who was a co-founder of the company in 2003, defended its value.

In the second quarter, revenue grew 100 percent from a year earlier, to $90 million, and the company recorded a profit in the first quarter, he said.

About 220 million people, most of them outside the United States, are registered with Skype, which uses the Internet to carry phone conversations between personal computers.

“It’s not like it’s been overtaken by Microsoft or Google or Yahoo,” Mr. Zennstrom said at a technology conference here. “Over the longer term, I think it’s going to turn out to be a good business.”

Revenue and earnings projections made by Skype executives before the sale to eBay turned out to be “a bit front-loaded,” he said.

“Sometimes I feel like we tried to monetize too rapidly,” Mr. Zennstrom said.

VoIP: Very over-Inflated Price

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This morning’s Observer column…

First of all, an apology. In previous editions, this column may have suggested that VoIP (internet telephony) stood for ‘Voice over Internet Protocol’. Now it turns out that it is, in fact, an acronym for ‘Very over-Inflated Price’. The proprietors deeply regret this error and hope that it has not caused any reader to make foolish investment decisions.

This matter was drawn to our attention by an announcement made last week by eBay. The company reported that in the quarter just ended, it will take £700m in write-offs and charges related to Skype – for which two short years ago it paid £1.3bn in cash and stock, plus what was enigmatically described as ‘a potential performance-based consideration’ estimated by industry sources at £750m. That’s £2.75bn in total…

I also wrote a short piece on the Wikipedia-obituary kerfuffle.

eBay: we goofed

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From Good Morning Silicon Valley…

Today, in what will undoubtedly be a blow to the Skype founders’ seller rating, eBay finally acknowledged that its bid for the VoIP firm may have been a tad overenthusiastic and that whatever expectations it had were not being met. EBay announced that in the quarter just ended, it will take $1.4 billion in write-offs and charges related to the Skype acquisition. About $530 million will go to former Skype shareholders to help them forget about those additional performance-based payouts. And eBay will write off about $900 million in Skype-related “goodwill” to more accurately reflect the acquisition’s value. And just in case the message wasn’t clear, Skype co-founder Niklas Zennstrom was eased out of the CEO’s office and given the non-executive chairman’s seat at the Skype board table.

Wow!

That still leaves open the question of what eBay ought to do with its tarnished toy, and Henry Blodget has an answer: sell it to someone who could put it to use, like Yahoo, Microsoft or Google.

Taking people at their Facebook value

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This morning’s Observer column…

To the old question: what are friends for? we must now add: how much are they worth? This is topical because rumours abound that Microsoft is contemplating buying a stake in Facebook, the social networking site. The really interesting bit is the arithmetic. Microsoft is supposedly contemplating paying between $300m (£147m) and $500m for a 5 per cent share. If true, this suggests that its advisers put a value of between $6bn and $10bn on Facebook. Google is also reported to be sniffing around, raising the prospect of a bidding war for a website which essentially enables people to post embarrassing photographs and impress acquaintances with accounts of their busy lives…

Apple’s reality distortion field

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I know the iPhone looks like a cute gadget, but this is ridiculous. Good Morning Silicon Valley has been reading the vapourings of stock-market ‘analysts’ who are ostensibly employed to give detached advice to investors. It’s an embarrassing spectacle. “This goes beyond smart phones and should be given its own category called ‘brilliant’ phones,” said Tim Bajarin, principal analyst with Creative Strategies. “The iPhone is the most beautiful and functional phone I have ever seen,” writes Jupiter analyst Michael Gartenberg. ” First time I held it, I was speechless for more than a few seconds.” At Bank of America Equity Research, Apple analyst Keith Bachman was slightly more judicious. “We believe [the iPhone] is a major evolutionary step, given that it has effectively eliminated keyboard keys and plastic input keys and is using a touch interface with software as its strength,” he wrote in a research note to clients. “Apple indicated that they expect to sell 10 million units in calendar year 2008. … Given the nature of the device as well as the ‘wow factor,’ we believe that the number sounds low.”

Oh come on, guys. Your supposed to put your brains into gear before advising clients. The iPhone looks good, but there are some awkward questions. GMSV picks up a few — for example:

  • How resilient is the iPhone’s screen? Is it more scratch resistant than those of its iPod predecessors; can it stand up to real-life use?
  • When the iPhone arrives in June, it will support only EDGE, the “poor man’s” data transmission technology. When will it support 3G?
  • Given past issues with the iPod’s “unreplaceable battery”, why does the iPhone feature a built-in battery? Who the hell wants to send their phone back to Apple Service every time it needs a new battery?
  • How robust is the mobile version of OS X?
  • And finally, there are the omissions — some of them glaring: No expandable memory. No support for WiFi syncing to your PC?

    • Can I toss in a few more?

  • Who wants to be stuck with Cingular — the mobile operator chosen by Apple?
  • How reliable/robust will it be? Given our household’s experience with flaky iPods and Nanos, I wouldn’t bet on the iPhone being as rugged as my BlackBerry.

    And then, hanging over Apple despite the reality distortion field centred on Steve Jobs, there’s the looming cloud of the stock options scandal. GMSV was admirably clear-headed about it this morning, reporting that

    last week San Francisco legal newspaper the Recorder reported that Apple recently sacked Wendy Howell, an in-house lawyer responsible for options paperwork. Howell is reportedly the author of fabricated board meeting minutes that were used to support CEO Steve Jobs’ tainted 2001 grant of 7.5 million options. And she’ll have a great deal to say to investigators, I’m sure, as will former chief financial officer and director Fred Anderson and former general counsel Nancy Heinen, who are also believed to be implicated in the company’s financial chicanery. But will they offer enough information to prove wrongdoing by Jobs? And if they do, will it be damning enough to unseat him? It’s hard to be sure.

    “Fabricated board meeting minutes”? If true, I can’t see the SEC letting up. This could go the distance.

    • ‘Social networking’ madness continues

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    The New York Times today has a story claiming that Mark Zuckerberg, the 22-year-old founder of Facebook.com, turned down a $750 million offer for the company from Viacom last January, and is now being offered $900 million by Yahoo.

    To woo Mr. Zuckerberg, Yahoo has offered about $900 million for Facebook and says it will keep the company somewhat independent, with Mr. Zuckerberg in charge. This has been its model with other acquisitions like Flickr, a photo-sharing site, and Del.icio.us, a social bookmarking service that lets members share lists of their favorite Web sites.

    “A lot of people say there are problems with having a 22-year-old C.E.O., but one thing that is good about it is that he doesn’t remember the boom and the bust that followed,” said an adviser to Facebook. “That has distorted the thinking of a lot of people. If they have a good product or service, they sell way too early and they don’t stick with it.”

    The adviser spoke on the condition of anonymity because of the sensitivity of continuing negotiations.

    Mr. Zuckerberg, through a spokeswoman, declined to comment on any potential acquisition offers.

    Money, at least so far, does not seem to draw him. He lives in a barren apartment in Palo Alto, Calif., a short walk from Facebook’s office. He only bought a stereo recently at the request of his girlfriend.

    “Mark is the kind of guy you worry needs to get other things in his life,” said David Sze, a partner with Greylock Partners, one of Facebook’s venture capital investors.