Tag Archives: facebook

Feeding Facebook

For a long time I used the “RSS Graffiti” app on Facebook to take the RSS feed from this WordPress site and publish it as a set of stories on my Facebook page. I’ve found that Facebook is a primary driver of eyeballs to the site; aside from the random Google query (like “best hockey books” or “electric sheep shirt”) that deposits readers deep within the Snowman’s innards, I rely on click-through from Facebook and Twitter. RSS Graffiti fell into that “too hard to maintain” gutter of applications that needed regular development work but didn’t have a revenue stream to support the coders.

I’ve been lazy and have been tweeting and explicitly posting items when I update the site. Until last week, when I dusted off my Zapier account and connected the WP RSS2 feed directly to Facebook. Zapier is an industrial grade workflow (or “business process automation”, if you’re an enterprise nerd, and your definition of “business” includes just about anything you can do with a net-based content tool) system. With my free account, I can create five workflows that run 100 times a month, every fifteen minutes — perfect for small-scale audience generation.

Enough Complaining About Facebook’s IPO

Enough already of the special Facebook ticker on CNBC, and the constant yammering on the financial news channels about its “botched IPO”. There was nothing botched about it — FB went public, the bankers collected their fees, they extracted the maximum value for their client, and they (seemingly, reasonably) complied with the Byzantine regulations governing disclosure, IPO roadshows and initiating coverage. I’m never, ever one to defend a Wall Street culture that sometimes values money over anything else, but in this case, I think the street was merely doing its job and now Main Street is complaining because the prize in the box of cereal wasn’t as cool as they had hoped.

The number one issue being cited now (detailed coverage) is that Facebook had steered guidance on its current quarter down, based on a continuation of the trends mentioned in its S1 filing – mobile page views substituting for desktop views, meaning fewer display ads. The risk is spelled out plain as day, and anyone who claims that this is a reason the IPO process wasn’t fair or resulted in losses isn’t doing the advance reading. The stock went down because the IPO was priced at the high end of the range, and now the market is doubting the valuation. No different than any other company, unless of course you were “expecting” that FB would run up 50% in week one. An active pre-IPO market, increased offering volume and price, and underwriters looking to sell most of their holdings were the warning signs. Anyone who thought they were going to get a three-bagger at the open was looking for the customers’ yachts from the One Hacker Way vantage point by the San Francisco Bay.

There is no excuse for not doing your homework if you’re thinking of buying into an IPO or any listed company. The wealth of information available is staggering, and you only need some simple valuation metrics and a spreadsheet to decide when and if you want to invest. The days of going to the library to find a copy of Morningstar’s mutual fund reports, or waiting for expanded weekly stock listings in Barron’s, are over. Sadly, the days of initiating a lawsuit as a consolation prize are still here. If you bought FB looking to make money, and you believe in the long-term prospects for the company and a valuation model that supports your thinking, hold onto the stock. Most of the money in Google was made after the IPO, not in the first week the stock traded.

The investing public most likely to be negatively affected by the IPO pricing and valuation includes those who bought into the offering on the pre-IPO secondary market — they are subject to the same 180-day lockup period as some employees, so while they paid $32-40 each for the same stock that can be had at a lower price today, they can’t sell for at least two quarterly earnings releases – the portent of which seems to be the depressing factor (in every sense) on the stock price.

Valuing Facebook

I was in Times Square Friday, watching the news camera crews setting up for shots with the NASDAQ 7-story high marquee behind them, toting the new FB listing. I had actually written this Thursday night, and held off posting it because as much as I thought the Facebook IPO was over-valued, I prefer not to be embarassed when the euphoria of a market overrides mathematics — and I was half right, but in the wrong direction (I’m long on Zynga, and Facebook’s failure to pop sunk ZNGA about 13%). While there has been a lot of pent-up demand, excitement and interest, none of it is backed up by a financial model for an advertising company. I don’t think Facebook is going out of business, or that its revenue model is broken (see previous post on the GM advertising issue), or that they can’t sustain growth – they are smart engineers who will figure out how to monetize those advertising channels, perhaps on an increasingly fine-grain basis.

I’m talking about the stock, not the company. I remain a huge Facebook fan and user, engaging in everything from teasing family to promoting various side projects to finding serendipitous connections between old and new friends. The stock exists in a virtual world of the NASDAQ stock market which doesn’t always behave rationally (or fairly), and when it snaps a lot of individuals tend to get impacted. My purpose in scribbling this out last night was to explain why I don’t plan on being one smitten but not bitten.

I digress.

As an advertising company, Facebook’s valuation is way too high. As a technology company, it’s valuation is also high: With a trailing twelve months earnings number around $1B, Facebook today is selling for 103x earnings. Advertising accounts for more than 85% of Facebook’s revenue, so that segment is a fair proxy for valuation, and it’s the comparisons to technology-driven advertising companies (read: Google) that give me the larger, Control-Z full stop pause.

Google is selling for a bit over 5x its last four quarters of revenue ($37.9B in sales, and a $600 share price with 326M shares outstanding). Perhaps sales multiples are less accurate than modeling earnings, but I think growth businesses get a fair number of hall passes for variations in earnings due to the cost of acquiring new customers, cost of growth initiatives, and accretive acquisitions. More simply, if revenue is growing, the company’s core business of selling ads is growing — top line monotonic growth is overly simple but pretty directly correlated to acquiring, retaining and monetizing advertisers.

Do the math on Facebook — at $4.5B in sales (being optimisitc for 2012, based on solid growth off of 2011), even a 5.5x sales multiple yields about a $25B market cap. Not $100+B. That’s a factor-of-four issue.

There are about 2.7B shares of Facebook outstanding (I took 2.7B shares outstanding from Google Finance); and a few lines buried in the S1 indicate that there are more shares backing RSU grants that have a vesting cliff in 180 days — I’m guessing but given the $5B line of credit taken to cover various costs of stock vesting, I’d estimate there are at most a few hundred million shares still to be released). Let’s say their float stays around 2.7B shares (fewer shares = higher price per share), and they can fetch 6x sales, and hit $5B revenue run rate by Q4-12: That’s $30B market cap, which translates to $11 and change a share. Dilution due to stock grants, revenue growth shortfalls, or compression of the multiple on revenues would increase my confidence ratio around that lower price. At $11, though, I’d buy the growth, and “like” away.

The old adage is that you’re buying a stock and not a company (or worse yet, a financial model done by an aging nerd on the back of an envelope containing a leased car bill). Your mileage will vary. There’s a reason I use a professional manager for all things finance related: I suck at it. But as a failed semi-mathematician, I’m eager to see how the market pricing calculus works for Facebook.

Facebook Ads and the Long Tail

In advance of the first tick on Facebook stock at the NASDAQ open tomorrow, it seems everyone has a comment about their revenue model and whether it supports a $100B valuation. Unfortunately, a lot of the criticism leveled at Facebook comes from an advertising world that still hasn’t figured out the long tail effect. Forbes’ commentary on GM’s departure from Facebook ads gets it (wrong) in one: it’s not about the efficacy of advertising in the broadcast or print sense. That model works for the products (and companies) that occupy the “head” of the distribution; the blockbusters and large volume products.

Facebook ads work if you’re trying to build a community, and want to reach people in adjacent interest areas: you like comics and frogs, why not come check out Amphibimen Comics on Facebook? (Yes, that’s a project of mine and Erik Nielsen’s). There’s no exhortation to buy a product. There’s no attempt to create need. That’s the “old” model for advertising, and the likelihood of someone clicking through on an ad to find out more about a product is probably less than them clicking on an application that promises a free iPad (as Facebook spam application vectors have shown).

Facebook ads move your interest from the head of the product curve to a spot somewhere under the long tail. They are the “push” that Chris Andersen describes as necessary for his model to work. In my limited experience with Facebook ads, I found that a budget of about $10 a day added a few new users to our fan base each day that the ad ran. My cost of acquiring an interested set of eyeballs? Probably $2 a user. That’s significantly better than direct mail, and I have better demographics, insights and consumption data than I would through a print advertisement.

So the sturm und drang about Facebook’s revenue model collapsing prefaced by GM’s move back to the classic consumer reach zone is way overblown. It’s the small businesses that can benefit. It’s the several million companies that make, distribute and connect you to things you will love, once you discover them, that should be thinking about Facebook ads — and not to point you to a website. The ads should take you to a Facebook page. To a place where you can find out how others are using the product, or why they like it better than something in the head of the distribution curve. Those ads build your community; users in the community will figure out how to become purchasers (if they clicked on an ad, liked a page, and read through some content, it’s a safe bet they can follow a URL on your Facebook page to buy the product).

Facebook ads aren’t only about the long tail; they are a long tail market themselves. Who needs GM when you can get 3,000 small businesses to spend $10 a day – it’s $10 million no matter how you bit-slice it.

Instagram Is About Context

There have been lots of bytes written about Facebook’s acquisition of Instagram, with the eigenvectors of sentiment pointing in roughly these directions: keep it away from Google, pick up wickedly smart engineers, build on their mobile expertise, get a rapidly growing user base at a reasonable cost per user.

The real answer (in my network-centric view of the world) is that Instagram is worth a billion dollars, a re-filed S1 and pre-roadshow signal to noise diffusion because it makes Facebook’s advertising platform more valuable through increased context. If a picture is worth a thousand words, then context about a photo is probably good for a few Gbytes in a map/reduce job.

What can you learn through Instagram? Where I take pictures. Who I share them with, who follows me and who I follow (perhaps shedding light on not just subject but style and composition). How I color-adjust the pictures provides more clues – am I nostalgic (sepia tones, black and white) or having fun (color over-saturation)? Know who is in the pictures, and where they were taken, and there’s significant weighting inferred for the edges in my page, group and friend social graphs. The data available to advertising campaign management is increasingly rich and timely — if your business depends on campaign generation, then creating richer campaign marketing data is nominally a high return investment.

I’ll be blunt: Facebook can do with Instagram what Yahoo! might have done with Flickr. It’s not about the content, it’s about what the content construction and conversation tells you.

So yeah, I can see why Facebook would spend a billion dollars on Instagram. Andy Balo (Kickstarter principal) provides some other metrics for measuring how far a billion dollars goes, but they’re all trailing indicators. An incremental $40 million in advertising revenues puts $1 billion of market cap back into a company that will be (supposedly) trading for roughly 25x annual sales post-IPO. That’s a leading indicator.

Maybe I’m being way too optimistic, but if Facebook can trawl through my Instagram photo data, then perhaps I’ll stop seeing ads that offer dental insurance to employees of a former employer.

Facebook Is The New MTV

Music is the original social network. Long before the printing press and written books, stories were carried in song, across generations and long distances. Even today, listening to the chazzan during a Shabbat service, I can make some guesses as to his or her age, seminary experience, and position on the reform-to-orthodox spectrum within three or four melodies. The networks implied in the music of our lives run very deep.

Someone recently asked me about the fascination with Facebook and Twitter, and why we’re so attuned to the mintutia of others’ lives. Facebook is interesting to us because it allows us to both create and listen to the ambient soundtrack of our daily routines. With all due respect and attribution to Paul Lansky, what the Walkman did for mundane events like walking to class Facebook does for even more quotidian parts of our lives: sitting at a desk, waiting for the kids in the parking lot, going out for dinner. Lansky claimed the attraction of the Walkman was that we could put our lives to music, creating a unique and immediate “music video” of whatever event we tuned out with the headphones. Personal music players created a personal music video environment. If we can’t be in movies, where music is married to narrative, then we can force a union of our own unwritten journals and favorite songs. It’s all about making our own stories interesting, even if to an audience of very few.

We like Facebook and Twitter for many of the same reasons: our friends and interests lay down a backbeat to a story, and we share it the way we share our latest musical discovery or first-run movie impressions.

But the whole reason MTV came into existence – to show us the music, explore “behind the music” and otherwise add context to song was that it was another channel for the music industry to promote its products. MTV was about creating a long tail for music, through obscure videos of bands playing in grassy fields, derelict car lots or in jail cells, long before we knew that we were supposed to be looking under that part of the curve for music that we liked.

Take those two functions – creating a narrative of our lives (in song or 140-character verses) and both publishing and consuming those narratives – and you have Facebook. Facebook is for the Millenials what MTV was for the late Boomers; and MTV has turned into a network of social situations.

Really Simple Sharing Experiment

Early results are in from my decision to stop using Facebook Notes. Due to a variety of failures on Facebook’s end, I decided to announce new blog entries as wall posts on my own and the Snowman On Fire Facebook pages. I’m calling the decision to switch a huge win.

Facebook is now the largest referrer of traffic to my blog. Those are readers who would have previously read the entire entry on Facebook, without seeing what other goodies and random hollering I have in the wider universe of snowman happenings.

Blog traffic was up pretty substantially, due both to increased referrals as well as more users going deeper than one page. Decreased bounce rates are a win.

In this case, RSS no longer stands for Really Simple Syndication – the feed isn’t syndicated at all. It’s more about simple sharing, and it’s simply a good idea.

Facebook Notes: So Long, and Good Riddance

I’ve been using the Facebook “Notes” application for about a year and a half to import notes from my various blogs into my Facebook profile and pages. As Facebook has grown in popularity, I’ve found more people reading my ramblings through that channel than those who end up clicking through a Google search or (gasp) actually subscribe to the blog or get the feed.

Effective today, I’ve imported my last Facebook note, and I’m glad to be done with them. The divorce is on two grounds: First, Facebook broke the Notes import function pretty badly about a week ago, without warning or feedback, and more important, using Notes fragments your audience.

I’ll address them in order of importance. As I’ve discovered the changing demographics of my blog readership, the increasing fragmentation of my readership bothers me. More people were commenting on my notes than leaving comments in the blog. I don’t rely on advertising or product sales on my blog, so the different sets of eyeballs don’t affect my (meager) writing income. But it is nice to separate my writing vehicle from its promotion and advertising. Facebook is about distribution; WordPress is about creation. Two functions now cleanly divided. Not to dissuade people from hitting “Like” or leaving comments on the meta-posts about blog entries that will show up, but I feel better knowing that discussion is being channeled away from Facebook. Tip of the propeller beanie to Amanda Blum who was the first person I heard suggest that making people click away from your blog was a Bad Idea if you used your blog to build brand awareness. And yes, we cover this topic a bit in Professional WordPress, and yes, I’ve just made a note for the 2nd edition to rewrite that section.

I’m now using RSS Graffiti to announce new blog entries as posts on my wall and the walls of my affiliated pages. Much simpler: I blog, it shouts to the world. You want to read it, you click through to my content (giving me much better analytics and audience assessment, thanks again, Amanda). No more notes, no more copying content into Facebook. Which brings me to the second point.

Facebook broke the Notes import capability, and the brokenness surfaces in non-deterministic but equally infuriating ways. When trying to reconnect this blog to my Snowman On Fire Page, I was first getting “Something went wrong, we’re trying to fix it” messages. I’m inured to “Oops, something went wrong” pop-ups when Facebook JavaScript gets garbled, but this was a new form of content-free error message. A little poking, though, showed that my feed was valid but had an XHTML error in it (a relative URL — found quickly via feedvalidator.org). Fixed the error, and then the Facebook error message switched to “We cannot find a valid feed at that URL.” Strange, as the feed validator, my browser, and any number of other feed readers were just fine with it. Reading through some Facebook online help forums, it looks like this has been an on-going problem, and one that may or may not be root caused.

If you’re going to change functionality of an application, let people know. Facebook can message users of an application; send us all notes using Notes if you want. If you’re going to possibly change the way a feed is imported, validated, or subjected to privacy restrictions (which I’m guessing is part of the root cause), then carefully explain what to change or how to avoid the non-sensical error messages. Otherwise, people will just resort to posting updates about their blogs, and not the actual content — which is likely a good thing, anyway, as Facebook has been quite squirrelly about what rights they can assert over content uploaded to their service. Net net, using the RSS Graffiti application means your content stays put, your blog posts are announced to your intended audiences, and it works reliably without having to check in every few days. The only downside (for Facebook): people are clicking away from your site, and even I know (now) that’s a bad idea.

Facebook Isn’t Going To Start Charging Users

Seems like at least once a week one of my (numerous) Facebook friends joins a group “protesting” that Facebook will start charging some nominal fee per month.

Facebook isn’t going to start charging users a monthly fee. They are (for now) advertising supported, and user fees would radically reduce the user population, which further reduces the value of those ads. There may be an equilibrium point, as with cable TV or satellite radio, where the for-fee premium experience (ad free, better content) returns more revenue than the ad-supported “broadcast” equivalent, but for now, these groups are bad behavior magnets.

In a word: Don’t join them. Ever. Because I own this t-shirt. And I intend to use it.

Huh?

Groups like this contain links that look innocuous, but when you click on them, the target site attempts to install malware, spyware, virus vectors, and other badness onto your machine.

How do you defend yourself?

  • Check snopes.com. The same riffs keep repeating. It’s like a Miles Davis solo before the solo part.

  • Think before you click. This goes for ads offering free iPads, links in groups that are shortened (why would you shorten a link in a Facebook group unless you were trying to hide the real destination?), or anything else that isn’t obvious. Same thing for links in emails claiming to be from your bank, credit card, or Yahoo!

  • Use anti-virus software. And keep it updated, and run regular scans, and try to stay ahead of the bad guys. A good defense beats a script kiddie offense, most of the time.

And if you doubt any of this, well, please send my regards to the Nigerian bank officials and the those who are warn you that the Internet is filling up and need your password to delete unused traffic.

Accidental Geography on Facebook

I’ll admit to a certain vanity with Facebook: I’ve been trying to build an audience for my blog, using a Facebook page to import blog entries and inviting just about everyone who’s a friend to follow the page. Facebook very nicely provides “insights” (analytics) on interactions with the page – number of comments, ratings, and other feedback.

Today I noticed that the “Cayman Islands” were the top country for interaction with my page. I have no friends (that I know of) who call the Cayman Islands home, so I poked around and found the page comment that generated the trend. Sure enough, it’s a US-based friend vacationing in the Caymans (his public content conveys the same information). So commenting on a Facebook page creates an indirect trail to whatever IP address is reported at the time.

IP addresses are a terrible mechanism for assuring location (due to proxies, carriers, firewalls and other aggregation/translation points) but in this case, they are a fair proxy for “not at home.” You could argue that if I’m using Facebook on vacation (or while traveling) I’m disclosing a signficant amount of personal information anyway, but there are many Facebook users who hide their home geographic information and by extension, might want to hide their mobile geographic information as well. The fact that source IP address trumps “home” for determining interaction sources means that Facebook is at least ignoring the intent of, if not the exact letter of, these user preferences when it comes to clouding geography.