Historically I’ve not invested in individual stocks, particularly tech-related stocks. Given my background running technology media companies I’ve followed the policy that if you have responsibility for editorial operations, you don’t trade in the stocks of companies your media brands cover. I’ve always analyzed the value of tech companies however: their market positioning, their product offering, their management strength and their ability to scale. Lately Facebook’s stock has taken a beating, but here are the top 5 reasons to be optimistic about the company’s future:
- 995 Million People Can’t be Wrong. We’ve never seen these type of numbers. Ever. In any medium. People routinely talk about 1 billion people having watched the Super Bowl or the Academy Awards on television. The largest television audience ever generated was 111 million people. The passive Facebook audience, those that log on but don’t post content, is 135 million. Bear in mind that this audience has been created on a platform that is only 8 years old. Analysts, pundits and financial wonks will tell you that “the user growth is slowing” and that FB has “hit a lull”. If the audience growth stopped cold tomorrow, FB would still have the largest engaged reach of any medium ever created. By far. And the value of this audience, given its size and demographics, will continue to go up, as the challenge of aggregating large audiences gets harder and harder in a fragmented media world.
- It’s About the Product. Mark Zuckerberg innately understands that the key to building a great company is to focus myopically on building insanely great products. FB has been designed with a focus on the user experience. Facebook turned down General Motor’s request for unique ad units that would take over the FB home page. As a result they lost a $10 million customer right before their IPO. This is a focus on product and user experience. Yes, conspiracy theorists also suggest that Facebook is taking your personal data and will be doing all sorts of evil things with it. You are in far more danger of your local dry cleaner or neighborhood restaurant misusing your credit card data than you are of Facebook misusing your personal data.
- Social & Mobile. Many analysts have pointed out that Mobile represents an enormous threat to Facebook’s future, as more and more people access the web from smartphones and other mobile devices. Ok. Hang on a minute here. What exactly are people accessing via mobile devices? Oh, their Facebook networks heh? Look we are now officially in the Mobile web era. Technology has always been purchased for specific applications and uses, however. People are and will continue to use Mobile devices to access their social graphs and as they do so Facebook’s traffic and revenues will grow as a result.
- Brand Marketing Matters. The “B” word, branding, has taken it on the chin in the first two waves of the Internet. Infomercials that drive direct marketing response have reigned supreme and Google’s ingenious, automated AdSense platform has dominated the landscape. But there is a massive amount of advertising and marketing that has been left on the sidelines when it comes to digital advertising. The demand for brand advertising has kept television, some print magazines and outdoor relatively healthy the last decade. Facebook is the first online platform that holds the potential to truly serve the needs of both the brand marketer and the direct marketer at scale. Facebook is hard at work demonstrating the value for passive ads on the site based on demographics. Once this takes off, every ad agency in the world can finally dive in the pool and make money creating and buying online advertising. This will create a world of hurt for television, but that’s for another post.
- Facebook as a Platform. In the mid-90′s it appeared that the Web Browser could replace Windows as the dominant platform in computing. Microsoft’s rapid reaction to Netscape put a hitch in that plan however. Microsoft reacted so aggressively because they knew whoever controlled the platform ultimately controlled the entire ecosystem. Today social networks have become platforms. Social networks sit at the center of gravity of the computing experience. They are the application that is always on, regardless of the device or platform and as such systems are and will be built to optimize the social experience online. Facebook has the potential to become the dominant platform and a strong and vibrant Facebook economy is emerging.
No stock price predictions here. Simply my take on the value of Facebook as a brand and platform. And yes, I’m going long on Facebook.