Facebook Is Becoming The Internet For Idiots

Does everyone remember AOL from the 90′s?  It was, for the lack of a better term, the internet for idiots.  Instead of letting people roam free throughout what was a rather unmarked path of the internet, AOL put up some walls and organized content decently.  And it worked, because the internet was new to so many people, and e-mail was really all they wanted or could handle at that point, the rest was just gravy.

Well we know how that story ended, internet users grew up and ventured out beyond AOL’s walls after swimming in the kiddie pool for a while, AOL was decimated.  Today, AOL’s biggest source of revenue is still as a dial up ISP, hilarious, what a dead company.

I have been extremely bullish on Facebook for a long long time.  Back in mid February when everyone was screaming that Facebook was overvalued at the Goldman Sachs 50 billion dollar round, I said Facebook would be worth 100 billion in the near future.  Shares on now trading above an 80 billion valuation on the private market.  I’ve been even more bullish on Facebook’s business model in general, becoming the world’s phone book and solving social search which Google has miserably failed at.  As the internet moves from thing centric to people centric, Facebook is destroying Google at being the go to resource for navigating the interwebs.

Facebook, for now, is innovating at a rapid pace, and they are going to have to innovate even faster.  Why? Because once again, the internet is growing up.  We’re about 5-6 years into social now and users are venturing beyond Facebook’s walls to interact with each other.  Social isn’t something that needs to be tightly confined to one user page anymore, inside a walled garden.  Facebook is becoming the internet for idiots, just as AOL had.  While Facebook still has a lot of inherent value, I can think of many different applications that do the secondary functions of Facebook in better ways.  The social web is getting less scary for the average user every day, and that isn’t good for Facebook.

They’ve done something very smart for sure in making their Facebook Connect application ubiquitous.  As users venture beyond the sparse garden of Facebook, they will always have that connection back by using their Facebook sign in throughout the web.  Facebook also has it hooks into the rest of the web through the application by being the social graph for many different applications like Pandora Radio.  While I don’t believe in the “one graph” due to the fact that people have different groups of friends they want to share with in different places, for now Facebook has convinced people to use their graph.  I believe this will end as users get used to having different graphs in different places, one for location, one for music, one for work…

I can’t tell you when Facebook hits the top of that curve, when the average user on the interwebs will decide that spending their time on Facebook within the garden is limiting them instead of keeping them from freaking out.  I’m sure there are metrics we should be watching, such as time on site, active Facebook users instead of just total users, and the amount of content being pushed through the site.  At some point these will all start to decline.  Is it 1 year, 3 years, 5 years, I’m not sure, but I will say it’s coming, there’s no doubt about that.

Would I still be long Facebook stock here if you had some, yes, but I would now be starting to sell into future financing rounds or an IPO, not buying into it.  At 100 billion Facebook could have another 2oo-300 billion in market cap left to go if it executes well.  If you’ve been long Facebook, even since the 50 billion dollar mark, is the risk of Facebook not executing worth sticking around for that growth, which will most likely take a lot longer to achieve than the move from 1 billion to 100? I say no.

Facebook is becoming the internet for idiots, they will share AOL’s fate, eventually.

Full Disclosure: Nothing on this site should ever be considered to be advice, research or an invitation to buy or sell any securities, please see the Disclaimer page for a full disclaimer.


blog comments powered by Disqus