It was over a decade ago that Tech Bubble 1.0 burst. IPO’s were so common that it was hard to keep up with them. Everyone was launching howtogetrichonastupididea.com.

All of these sites shared a common feature, lots of hype, but absolutely no business plan worth a lick. Even the few that did have some kind of plan mostly wallowed in the glory of the moment, rather than the harsh reality of the future. The future is unpredictable, todays Hot Product has a nasty habit of turning into yesterdays Chia Pet.

One only has to look at Netscape, AOL, MySpace and Yahoo to see the problem. What is hot today is not hot tomorrow. It matters not to the users, they just move on to the ‘next big thing’. Internet Relay Chat and its mIRC client ruled in the late 90’s, as did the world of Usenet notice boards. These ceded to Microsoft IM and Yahoo Groups, in turn, these were replaced by ‘texting’ and more sophisticated ‘Message Board’ offerings.

The basic rule is that a fad will last about as long as you can store a perishable item in your ‘root cellar’. After a couple of years people move on to the next ‘big thing’.

Netscape was hotter than the Sun when it launched. Netscape made a very successful IPO on August 9, 1995. The stock was set to be offered at $14 per share. But, a last-minute decision doubled the initial offering to $28 per share. The stock’s value soared to $75 on the first day of trading, nearly a record for first-day gain, the stock closed at $58.25.

But of course this fabulous love affair with the stock market was short lived. Netscape is merely a piece of history today.

AOL very much goes into the same category. By the late 90’s it was impossible to check your (real) mail box without finding a floppy disk with the offer of 30 days free trial. Where is AOL today? The limp along but hardly are part of the mainstream. In some ways Yahoo tell a similar story. What was hot then, is far from hot today.

Microsoft is the one company that has succeeded, but you would not think it from it’s stock price. It rarely moves from the high $20’s. It is hardly a great place to stick your money.

Microsoft does however offer some tangible products, these result in sales. The Windows OS and Microsoft Office are everywhere.

So, lets talk about FaceBook. Sure it has over 900 million users, but where does it make money? People playing FarmVille or uploading cute pictures of the family cat taking a bath does not make money. If FaceBook actually has a plan we shall have to wait and see. Right now though times look a little less rosy. For the sake of simple math, lets say that FaceBook has 1 billion users. Last Friday the IPO raised $18 billion. So each user is worth $18? Or to look at differently, based on the IPO the company is theoretically worth $100 billion. This means that everyone with a Facebook account is worth a whopping $100.

This sounds unlikely, but that is what the math shows. The IPO was hyped to the extent that it was a sell out. The man in the street with $500 he had been saving for a rainy day was out of luck. Well sort of.

Facebook has tanked. In just three days of trading it has lost more than 16% of its value. Bought last Friday for $38 it closed today at $32.

Be glad that you still have your $500!

If the trend continues it will only be a matter of time before Facebook joins the Banks and Car makers, cap in hand, looking for a bail out!

The FaceBook grumbling is in high gear, the feds are hot. Accusations of ‘selective disclosure’ by J. P. Morgan are running rampant. The thing that gets me, is why was this IPO so hot to begin with? Few of the 1 billion members actually bought anything. Advertisers had become lack luster to spending their budgets on the site.

So where is the big surprise that the IPO tanked? Where was the great opportunity for Facebook to turn the big profit?

Simon Barrett

 

 

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