frankly speaking

Undervaluing Facebook

Facebook went public last week and to people outside tech and finance, it appeared to be a flop. The share price ended the day at nearly the exact same price as the price it ipo’d at.  Further, there’s plenty of evidence that the banks that brought the company public were buying tons of shares towards the close of the trading day to bring support to the price of $38/share.

Lots of people are still saying that Facebook is still overvalued at its current price. In fact, my friend Brandon said the following:

Here’s the problem with that analysis - Facebook has nearly 900mm users. Assuming the company is worth $100B, and using Brandon’s logic, that would value the personal data of every user at $111. I think most people would value their personal information at a much, much higher dollar figure than that.

Further, influential Tech Blogger, Sarah Lacy was on CNN this morning and I felt made a much more compelling point. She said that Facebook went public way too late (in comparison to companies such as Zynga and Groupon). To a certain extent, Sarah’s right - Facebook has nearly 900mm users and it’s been widely reported that their user acquisition has slowed somewhat.

Here’s the point that I think is being overlooked by most people, Facebook’s core business, advertising, is really only 4 years old. Re-read that last sentence again. That means that Facebook has yet to really scale it’s ability to make money. Remember when Google’s Adwords program was only 4 years old when it went public - and look at the behemoth that it’s become today - most companies can’t live without it.  Facebook has yet to really tap into most of the ad dollars that are out there. Further, there are other business models that could have a huge impact on their bottom line (Facebook Credits being one of them). Once advertisers figure out how to properly leverage facebook the way they leverage Adwords and when etailers finally figure out F-Commerce, the possibilities for Facebook’s stock price are endless.

Tags: facebook

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Date: 05.20.12 Time: 14:37 PM
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Organic vs Non-Organic Customers

I follow a lot of blogs of guys who moonlight as venture capitalists, and one thing I’ve noticed that they all agree on is how much they hate paid marketing and much prefer organic growth. I’ve written here before why I believe that thought process is misguided. Having said that, I’ve had some time to think about what they really mean and here’s what I’ve come up with - organic customers are worth more than paid customers.

Think about it, for the most part, tv, radio, billboard and banner advertising are demand stimulating channels - the purpose is for the advertiser to get a potential consumer interested in their product. Search is a demand fulfilling channel - someone types in a query into google because they are already interested in a particular subject or product and they click on the link that they find most relevant.

Customers who come directly to your website (or in some cases searched for your product or heard about your product from a friend) are generally referred to as organic customers. The life time value of these customers (from what I’ve seen) is longer and more valuable than it is for non-organic customers. This is the reason (I believe) venture capitalists would prefer organic customers over non-organic customers.

Further, the cost of acquiring an organic customer is dramatically lower than the cost of acquiring a non-organic customer. So simple math (longer life-time value, less cost) tells you that the focus of your strategy should be to get organic customers.

That said, it would still be a mistake to have zero paid advertising. Some traction is better than no traction and paid advertising is a way for you to get customers quickly and if done right, is a scalable solution to customer acquisition.

Tags: Start-ups

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Date: 04.22.12 Time: 17:18 PM
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Rise of the CrowdSourced Start-Up

Recently, the US Senate passed the JOBS act. One of the most interesting provisions of this Act allows for more start-ups to pursue funding through crowdsourced  funding methods. Of all the things that the Obama Administration has done, this could yet prove to be the most valuable.

The ramifications of this are pretty huge for technology companies, and this could go along way to easing unemployment in our country. This is sure to stimulate growth from the bottom and hopefully further disrupt age old ways of doing business.  One of the big problems that many would be entrepreneurs have faced when trying to start companies is the very restrictive nature of trying to secure capital from angels and venture capitalists. Now, entrepreneurs can raise that much needed capital from complete strangers.

Make no mistake, this process will not be perfect. There will of course be bad apples who take advantage of the system and use money from well-intentioned individuals for nefarious purposes. Further, there will be thousands of uneducated potential investors out there who think they’re the next Peter Thiel or Ron Conway and end up losing their shirt.

Eventually, through trial and error, I think the process will work itself out, and some basic ground rules will be put in place that protect investors and companies and this will be a huge win for everyone involved.

Tags: Start-ups

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Date: 03.29.12 Time: 20:08 PM
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