For the last 7 years or so one thing has been certain: don’t you dare compare anything “tech” today to back then. What is “back then?’ Hint: the dot-com crash.
Why? Because: “It’s different this time!” Well, my answer to that remains the same: “Sure it is.”
I have been making that case to the screams and howls of many of today’s Silicon Valley aficionados. And for a prominent example, I’ve used none other than the most idolized company of tech today to compare it against the same of the 90’s e.g., Facebook™ and AOL™.
In doing so I have received more vitriolic disdain than if I had tried to openly explain the value of religion at an atheist convention. The only comparison that may top both is trying to explain Business-101 to Ph.D economists. But I digress.
In trying to make the case using true business metrics, as opposed to unicorn and rainbows, fundamental business metrics, and principles, have always fell short for only one reason: The stock price.
When a company has nothing more fundamental than a burn-rate, as opposed to a fundamental such as making net profits? The rising value of the stock price (regardless of its multiple) is nothing more than the fundamental business phenom known as – the greater fool theory. Period.
Yet, the argument of “It’s different this time!” tries to hide behind that theory (a fool’s theory by the way) as the reason why companies that generate less than no profit – are worth 10’s of $BILLIONS in market cap. That’s not – it’s different this time – genius. That’s – same as it ever was – stupidity. Plain and simple. Where some of the reasoning argued could make even P.T. Barnum blush.
So why do I say Facebook (FB) and AOL of the past are rhyming and so in-tune today? Well, let’s just look at the most recent
scandal revelation coming out of FB today. e.g., Overestimated a key video metric for two years.
Now some are stating this latest oopsy is immaterial since FB is said to charge after 10 seconds. So, as the thinking goes, no one paid for something they shouldn’t. Well, that’s how it’s being argued by both FB and those marketers that rely on getting companies to part with their ad dollars via their services and FB’s. But to an advertiser? I’m sorry, but that revelation is far from no big deal. And here’s why:
First: Why was the distinction of not counting from the first moment till after 3 seconds made in the first place if not to skew a metric in a more favorable light? i.e., against other competitors metrics, etc.
One thing you haven’t heard, at least to my knowledge, is this: Advertisers (you know, the ones who actually pay) were made aware they didn’t count the first 3, that they start their compiling at 4.
I’m sorry, but if they didn’t disclose that in their metrics and hid behind skewed numbers instead? That’s a problem. And a very big one at that. Why?
FB seems to not just be having an out-of-the-blue oopsy moment. No, it seems revelation, after revelation of improper practices are coming to light faster, and what some might infer as more scandalous than the next. Need a reminder?
Remember how FB claimed for the longest time its “trending” news stories were all algorithm based? (i.e., no human intervention.) Only to admit “oopsy” yes there was. Yet, the “You should still trust us” excuse came in the form of some “because no one is/was suppressing anything” only to find out that, once again, oopsy – there actually might have been some. But not too worry, it was just a little, nothing material, nothing to see here, move along, thanks for signing in and stopping by.
That whole scandal/revelation still has much further to go as to where it may, or, may not end. For much like the “3 second video” disclosure – advertisers were paying for something using metrics supplied by FB and possibly receiving something different. e.g., The ongoing Steven Crowder vs Facebook Inc. lawsuit.
Add just the above with another revelation (one, in my opinion, is truly breathtaking) which came in the form of not a scandal per se. But rather, it came in the form of the largest ad buyer in the world stating publicly that one of the cornerstones of FB’s ad business (i.e., the ability because of its vast data gathering to target specific customers, in my opinion its raison d’être) was – yeah, not worth it.
So that’s just some of what is transpiring today, so “Where are the comparisons to AOL?” you’re asking. Fair enough.
If you watched any followup of FB earnings reports by the mainstream financial media one of the things you’ll hear is something along these lines, “They really get mobile, and they’re the biggest player in that space and making money to-boot!” They’re fair points, but just like in the 90’s – all “ad” spaces were new. Mobile is just this period’s comparison to desktops, as banner ads were to actual newspaper ads.
Here’s a report done by CNNMoney™ on AOL way back in August of 1998 (you know, just previous to it all coming apart) titled “AOL – We’ve Got Profits!” As one reads it, it’s striking just how much it rhymes with FB today. Especially when you read things like this:
“Entering our new fiscal year, we’re not only the biggest in the industry, but the most profitable. Fiscal 1998 was more than a great operational year for us, but it will serve as a strong foundation for years of profitable growth,”
Sound familiar? How about another?
From the same article:
“If we continue to grow membership, advertising and commerce, we believe we will continue to show very strong growth in profits.
“The overall driver will be turning this into a mass medium. The question is who’s going to get those customers.
“We’re not going to get complacent, but we’ve created a service that’s fun and easy to use. Those factors and the general shift in spending to new media positions AOL as the best brand in the industry.”
Now a lot of people are going to say “Yeah, but you’re just “cherry-picking” as to try to make a point.” And that is a fair argument. However, FB and its entire business model, stock valuation, and many others I have been stating (and pointing out) are far too similar to AOL of the past and is a real-time barometer of what I believe portends to the entire “social” genre of today. i.e., It’s just one hiccup away from entire meme of “it’s different this time” going the same way of the dot-com bubble of the 90’s. Because, in my opinion, FB is showing it’s contracting a very, very, bad case of fundamental business indigestion with each new
As to show how the “indigestion” becomes manifest into business “ulcers.” Here’s a story from the NY Times™ just a few years later (’02) titled : “AOL Falls 15% as Analysts Express Concern Over Ads” And here’s just a few quotes. To wit:
“The call today was psychologically driven, rather than quantitative,” said Richard Greenfield, an analyst at Goldman, Sachs, which removed the stock from its recommended list and rated it as market perform.
“It was based on the belief there were too many issues that had piled up about the AOL division including its growth strategy, its current lack of management and the S.E.C. probe,”
And here is one I feel is probably the most ominous for those who understand such things. Once again, to wit:
“Regardless of whether it accounted for them properly in the past, AOL made some new disclosures yesterday that showed its online ad business might be far worse than previously understood. Until the end of 2000, America Online would boast each quarter about its advertising backlog, or the value of signed contracts to advertise in the future.
AOL had made a specialty of signing multiyear, multimillion-dollar advertising deals, especially with dot-com start-ups hoping to go public.”
Do you remember who was one of the largest contributing ad buyers in FB latest earning call? Hint: Ads for app installs. i.e., Start-ups. Today’s version of yesterday’s dot-coms. And guess what today’s “app installers” have with yesterday’s “dot-coms? Hint: Entities created on spectacular, speculative cash-burn. (Cue onerous Halloween music here)
Here’s a line from an article to put it into context from Fortune™ in July of this year. To wit:
“Some investors believe that Facebook may see a drop in ad spending as the funding for tech startups pulls back. Startups are big customers of Facebook’s popular app-install ads.”
The more things change, the more they stay the same, no?
Then, in just under a year later – it was just about all over. One of the main drivers for the stock falling ever further? Here’s a transcript of an online discussion on this subject via The Washington Post™. Of all that is asked and answered this one line hit me with such rhyming, it is where the auto-tuner reference came to mid. Once again, to wit:
“Arlington, Va.: What’s behind the huge drop in ad spending at AOL?
David A. Vise: AOL aggressively made unconventional ad deals, many with .coms that have since gone broke when th bubble burst. The drop reflects the run-off of those deal and AOL’s inability to replace those ads, even though overall spending nationwide on online ads is growing, boosting ads @ Google, Yahoo and others.”
Yep, nothing to see here folk, just keep on signing on, and buying, in while humming a happy tune that rhymes with something like “The Swissy’s got my back, Yeah, Swissy’s has got my back, Oh the Swissy’s….”
Yup, It sure is different this time.
© 2016 Mark St.Cyr