The best, most easily actionable investment advice I ever received was from my economics professor at college. He told his students that his investment strategy has always been to bet against the cover of Time magazine.
By the way, he was the only professor on campus who owned an S-class Mercedes.
My eyes have been drawn to the cover of Time ever since. And while his principle has proven to be less useful in the world of politics, it has proven to be eerily predictive in the world of business. If his principle holds true, Time magazine’s 2010 Person of the Year is in for some trouble.
I for one am not celebrating. In fact, I’m very worried. Many in Silicon Valley would suffer immensely if Facebook turns out to be a bubble. A lot of time, money, and energy have been invested in the Facebook ecosystem. An implosion of that ecosystem would have enormous negative consequences on everyone living here.
But if we apply Peter Thiel’s definition of a bubble (a true bubble is when something is overvalued and intensely believed), it certainly looks like Facebook is a bubble. Judging by the number of investors desperately trying to get their hands on Facebook stock at any price, the bubble is only getting bigger.
Of course, a bubble getting bigger is another sign of a bubble. But the ultimate sign of a bubble is its bursting. So what are the signs of a Facebook bubble burst? Here are my top 5 (and notice I left off their inability to penetrate China):
- Failure of Facebook to impact how businesses operate
- Negative coffee shop chatter among high tech professionals in Silicon Valley
- Apple’s embrace of Twitter
- Facebook’s penchant for stealing
Working backward, it’s not ok steal. Yet Facebook seems to be practically built on the premise that it is. The traditional punishment for stealing was to cut off a hand. Now the punishment is to divert our eyes. Talk about a valuation killer for a consumer Web company! This will be like gasoline on a fire if a bubble ever begins to bursts.
What Google is about to deliver with Google+ looks spot on. Others seem to think so too. The Chinese government apparently concurs as well. That, combined with Apple’s passionate embrace of Twitter, puts a pretty wide moat around the exploding mobile apps market. Mobility will likely prove to be the ultimate value creator for social networking. Yet Facebook is designed, literally, to replace a book with faces. Not much mobile about that. And now the two dominant mobile OS vendors will be actively working against them. Bubble, bubble, bubble, bubble, bubble!
Then there’s the Silicon Valley coffee shop chatter. To get an early idea of what high tech insiders are sensing, there’s nothing like going into places like University Café, Coupa Café, or some of the dives in the inner mission district of San Francisco, sitting down, and just listening. I do it all the time. And I’ve heard a lot of negative comments about Facebook for months now. The common theme is a sense of user dissatisfaction with Facebook. At first I couldn’t quite put my finger on why people think users are dissatisfied. But the picture is becoming more and more clear. People think of the Web as an unbounded, constantly growing and evolving ecosystem. Yet Facebook constantly works to try to keep users firmly planted in its own walled garden. That is leaving users with a sense that they’re missing out on something on the other side of the wall.
I can’t imagine a more dangerous feeling among users. There is nothing that high tech entrepreneurs enjoy more than knocking down walls and showing users what’s on the other side. Eventually, and probably sooner rather than later, what’s on the other side is going to look a heck of a lot more interesting to users than Facebook. And that will be the pin on the Facebook bubble.
This brings me to the world of business. Unfortunately for Facebook, the tendency for businesses to continue to use legacy technology long past the point of obsolescence won’t come to Facebook’s rescue. It saved IBM, it is saving Microsoft, and some day it may save Google. But Facebook has had little impact on how businesses are run and on how people actually do their jobs. As Esteban has argued many times before, Facebook’s role to business is largely limited to that of a channel.
For many in the social business community, this has proven to be a big disappointment. Many companies have been built on the premise of “Facebook for the Enterprise”. But as I discussed in a previous post, things aren’t working out that way. That leaves the social business community yearning for a new paradigm to hitch its wagon to. It needs a social paradigm that businesses will relate to. And Facebook is not it.
So what do you think? Is Facebook a bubble? Would you be happy or sad about that? Oddly enough, a Facebook bubble could be the best thing that ever happened to social business. Even so, it would be very, very painful.