F.T.W.S.I.J.D.G.I.G.T.

(For those who say I just don’t get it…get this!)

Today is a two-fer.

A few weeks ago I wrote an article about how I perceived a possible political celebrity “Jump the shark” moment. It seems I wasn’t all that far off in my reasoning than some had protested.

When I first penned the article it was based on the what I presumed to be a one-off event. However, that proved not to be the case when only a week or so later another followed along the same format, albeit with what appears to be a rotating cast of celebrities.

Just a few years ago these types of ads were thought to be “so moving, so believable, so inspiring” that to even question them (particularly by those on the other side of the debate) was seen as blasphemy, punishable by public scorn not only in the media, but with friends, family, or at work. It was for all intents and purposes “taboo” to ever take the opposing side (in public that is) of the venerated celebrity with a cause.

That is, it appears, until now.

Today, not only are these types of celebrity political ads (or what I deemed “casting calls for action”) being met with little to no regard. They have recently produced the exact opposite results as in the case of electors of the electoral college switching their votes away from their “chosen” candidate to another.

Yet, what’s truly different this time (from my viewpoint) is the sudden and vociferous mocking coming from not only the general public, but also from the once timid, if not outright terrified of this once bludgeoning criticizing hammer. i.e., The side or viewpoint being scorned.

Here are just a few of the most recent: There was this mocking from Townhall™

Here’s another titled “dear celebrities

Doesn’t matter what political side of the aisle you stand on, one thing today is different that all times previous: Just a few years ago if a video was made in response it would be something on the idea of bending over backwards to show that they weren’t anything like what the “political celebrity” was portraying them to be. Today? A far different reaction, as well as response.

Not so convinced? Fair enough. So let me use another: Meryl Streep’s award speech. Or should I say – Expressions of disdain?

Whether you agree with her or not – one thing is incontrovertible: Everyone’s got an opinion on it. And the one’s who only a few years ago would just ignore it? Are today far more boisterous about their condemnation of it (and Hollywood in general) than any time in at least my memory, with one of the best examples emanating from the MMA community itself in tweet form. To paraphrase: “With all due respect to Meryl Streep…MMA may not be the arts, but then again, neither was Ricki and the Flash”

Ouch!

If you want to read more of what I’ll argue you would have never read just a few years ago, there’s UFC President Dana White’s thoughts racing across a myriad of not only media sites, but also Hollywood’s own. Again – almost unthinkable just a few years ago. All I’ll say is this: He doesn’t hold back any punches, so you’ve been forewarned.

The second comes to us from no other spot than the “Ivory Tower” itself and one of its most heralded acolytes Paul Krugman.

In an article I opined why “Princeton Math” never ads up, and my reasoning why.

Some have argued to me over the years I only use academia or “Ivory Towers” for the sole purpose as a foil. Some have argued (usually when they found I wasn’t buying what they were selling) that I was just “envious” or “secretly jealous” that I didn’t have some form of alphabet soup after my name. e.g., Ph.D, MBA, LMNOP, et cetera. As I’ve explained to near exhaustion, that’s hardly the case.

So today without further ado I would like to state for the record side by side quotes by one of the main reasons why people are charged extraordinary large sums of money to obtain said degrees from the likes of professors such as Princeton’s former resident Mr. Krugman. And why people with only remedial skills inherently know, and understand why, when they listen to his (or ilk’s) pontificating they are left either totally bewildered, completely confused, or downright stupefied. To wit:

screen-shot-2017-01-11-at-11-07-40-am

( Image Source: and you can read more here)

And that my friends is why not only the Ivory Towers of academia and the economic community at large is finding itself more along the lines of a running joke, rather than anything once beholden to a “sheepskin” stamp of approval.  After all, when academia thinks it’s just dandy to charge well into 6-figures for that sheepskin only to leave taught, and thinking (and worse believing) 2+2=5 ? Maybe that’s why this years yearly gathering of academia was met with its own realization or feelings of, “Wait…What?” To wit:

Via the WSJ™: “Top Economists Grapple With Public Disdain for Initiatives They Championed”

Not to worry I guess, after all, more money is always the solution we’re told by academia. So it shouldn’t surprise anyone tuitions are expected to once again rise. So when that bill arrives? Just apply the same math of 2+2=5 to your checking account. And if the check bounces? Just explain you used their math to balance you checkbook and if there seems to be insufficient funds that they should just forgive the debt, and give you a pass.

See how far you get.

© 2017 Mark St.Cyr

Footnote: These “FTWSIJDGIGT” articles came into being when many of the topics I had opined on over the years were being openly criticized for “having no clue”. Yet, over the years these insights came back around showing maybe I knew a little bit more than some were giving me credit for. It was my way of tongue-in-cheek as to not use the old “I told you so” analogy. I’m saying this purely for the benefit of those who may be new or reading here for the first time (and there are a great many of you and thank you too all). I never wanted or want to seem like I’m doing the “Nah, nah, nah, nah, nah” type of response to my detractors. I’d rather let the chips fall – good or bad – and let readers decide the credibility of either side. Occasionally however, there are, and have been times they do need to be pointed out which is why these now have taken on a life of their own. (i.e., something of significance per se that may have a direct impact on one’s business etc., etc.) And readers, colleagues, and others have requested their continuance.

A Thought (Or Warning) About Future Advertising On Social Media

Over the last few years social media has been used as a pummeling stone for many an activists tool box. It doesn’t matter the organization or affiliation. All that mattered was whether or not the “activist” could impose their will upon what ever the subject matter was which they deemed as “their” movement of choice. Right, left, middle ______ (fill in the blank) it’s been used by all, granted, some with more frequency and fervor than others.

Usually the number one call (or tool) used are the across-the-board calls for boycotting of the now targeted, bulls-eyed offending person, service, product, or company. Sometimes, the call is for all.

More often than not businesses of all stripes will do “whatever it takes” as to make it stop. Even if they didn’t do anything wrong to begin with. For in business one of the first rules is: Never let your business, yourself, or employees be seen doing anything, or promoting anything, that could cost you business. Period.

It’s what I call the “Rule 1.A”  of business. For if Rule 1 is – don’t lose money, and Rule 2 is – see Rule 1. Failing to understand there is Rule 1.A can lose you more business, or money, faster than Rule 2 can ever be applied.

So here we are today with businesses (or brands) as squeamish as ever when it comes to the possibility that their products or services could be seen, or inadvertently be interpreted, in some form of “bad light” (think of all the pixellated logos you see throughout television programming) now are facing what I believe is the first real-time example showing the potential for harming, or disgracing a company, product, or brand that may have taken years, if not decades to create.

Why? Algorithmic insertion marketing. Social media’s #1 raison d’être for extracting monetary gains via the “ads for eyeballs” model.

So what makes me bring up this contemplation today? Fair question, and it’s this: The “Kidnapping” which took place in Chicago that was broadcast live on Facebook™.

Personally, I now deem this as Facebook’s not so political bias moment for reasons you can judge for yourself.

I make this observation based on the story written in The Guardian™ a few days ago and Facebook’s public statement in response. Too my eye and ear, what was reported had the all the elements for a true “Wait…What?” moment.

I read, and re-read FB’s response so many times I was going cross-eyed, and yet, I still needed to read it again just to make sure I couldn’t interpret it any other way. I’m still shocked.

In this report from The Guardian, Facebook refused to explain (“refused” meaning not sounding like utter nonsense) why the live streaming torture video wasn’t taken down sooner. As I inferred, it isn’t that they refused to answer, it’s what they did state as a reason that was far more alarming. Here is what was given as an explanation by a spokeswoman for the company. To wit:

“We do not allow people to celebrate or glorify crimes on Facebook and have removed the original video for this reason. In many instances, though, when people share this type of content, they are doing so to condemn violence or raise awareness about it. In that case, the video would be allowed.”

Got that? Again, don’t take my interpretation. Re-read it for yourself and try not to think “Wait…What?” for yourself.

And if you’re an advertiser on that platform and you experienced a slight case of indigestion as you read it? Congratulations is all I’ll say, because it proves you may indeed still have some sense of reality about unintended consequences and your business. Here’s why:

In that above statement there’s a defense for letting it be viewed or passed around. e.g., “In many instances, though, when people share this type of content, they are doing so to condemn violence or raise awareness about it. In that case, the video would be allowed.”

So with that reasoning it is also very plausible, as well as highly likely based on what happened, and the reasoning articulated by a spokesperson representing FB, that videos such as this may indeed happen again with FB’s blessing if they deemed it met the aforementioned criteria in their eyes.

Does anyone else see the implications here? For if that is so? Is it too far out to go on-a-limb to rationalize that maybe since everything is becoming more, and more “sponsored” (after-all that’s how “free” is paid for) that a video such as this can (or will) come across a users “news” feed or whatever it’ll be called at the time with some form of promotional advertising associated with it?

Think I’m off base or just making a brouhaha out of nothing? Fair point. So let’s use the visual (since that’s what this was) and I’ll add my own example for instructive purposes only and ask you to see just how far off-base my concerns are. ready?

(Image source from the afore referenced Guardian article)

screen-shot-2017-01-10-at-12-10-40-pm

This video brought to you by ______________ (fill in the most politically incorrect phobic corporation of choice here – along with its tagline.) Also: If it’s you? Better hope your tagline doesn’t enhance the offensiveness making matters even worse. Think about it.

See what I mean? Or should I say, “Are you feeling it?” For that’s the reason why you may have had that moment of queasiness earlier. And again, if you did? Congratulations – for it proves you’re thinking.

If I were to put on my consulting hat and was facing a gathering of companies seeking advice for advertising in the coming months here’s how I would open the meeting:

I would show the above picture on the large screen behind me along with the “This video brought to you by _______” then state the following…

“If you’re an advertiser, or brand this should be viewed as a warning sign (adorned with big flashing letters and blinkers) for the potential of outright PR disasters in the not so distant future, although that “future” may-in-fact be already here.”

Then: I wouldn’t make another sound or movement for what would seem as uncomfortably long time. Then I might proceed with the following…

“In the “ads for eyeballs” model it’s inherent that every feature, every note, article, banner, whatever, must be paid for by an advertiser in one form or another. For “Free” to the end-user usually means “paid for” by an advertiser. And advertisers such as yourselves don’t pay for anything unless your names are attached to it in some form or fashion, which only makes sense. So now here’s the quandary:

If targeted ads have now shown their worth (as in not worth it) that even the largest ad buyer on the globe P&G™ has opted out for more saturating coverage as opposed to targeted. (not forgetting this was social media’s touchstone value proposition) That means algorithmic based insertion of ads should now be the de facto model of choice.

And if that’s true? That means based on algorithmic models (how many clicks, age group, et cetera, et cetera) the most politically incorrect phobic of companies may/can/will? find themselves inserted into, or guilty by association in videos such as the above. It’s a very reasonable conclusion. And being so “reasonable” makes it ever the more concerning.

However, concerning as that may be? What should be far more concerning to you as advertisers is FB’s official statement as to its legitimacy of not only not being taken down with immediacy, but rather, why similar incidents may in fact not be taken down at all if FB deems it.

Remember, as per FB’s own spokesperson: “In many instances, though, when people share this type of content, they are doing so to condemn violence or raise awareness about it. In that case, the video would be allowed.”

So with that in mind here’s what you must now comprehend: It may be you, and your ad dollars, touted boldly as the sponsor for bringing such content to millions with said content not being taken down until far after the damage (as in a negative affect about your brand, company, or service) may in fact have already been done.

For you may only find out about it after the fact. And “after” may be well after., remembering the above stayed up some 30 minutes before outrage finally caused it to be taken down. “Outrage” being a fluid term. What if a level of outrage wasn’t hit for an hour? 24? A week? Or, as per FB might deem it “appropriate” and should be allowed to stay up? All being brought to them by your ad dollars and stated as so.

But then again, “social media” activists or causes will always take your explanation that it “Wasn’t your fault!” or “Your company would never stand or support such things!” first, when, or if, it could be shown it was only some stupid “robot” that inserted your ad, correct?”

I leave it there and ask you to ponder the above for your own conclusions.

© 2017 Mark St.Cyr

Is Social Media’s “Ads for Eyeballs” Valuations About To Be Eviscerated?

There’s a peculiar tone emanating from the social media space. It’s a little hard to hear, but if you listen closely, it’s there none the less. That sound is the sudden gasp of realization that the most dominating reasoning and defense that encompassed the entire social media space may in fact being laid-to-waste right before their screens. That horror?

The eyeballs for ads model doesn’t work. And – it’s being stated by one of their own. (Insert the scary music tones here)

In a blog post the online publishing platform Medium™ stunned what I refer to as “The Valley” (i.e., the everything social and disruption purely for its own sake devotees) when it announced two stunning proclamations. The First: It was jettisoning about one-third of its workforce. Second: The reasoning behind it, Here’s an excerpt, to wit:

“We also saw interest from many big brands and promising results from several content marketing campaigns on the platform.
However, in building out this model, we realized we didn’t yet have the right solution to the big question of driving payment for quality content. We had started scaling up the teams to sell and support products that were, at best, incremental improvements on the ad-driven publishing model, not the transformative model we were aiming for.
To continue on this trajectory put us at risk — even if we were successful, business-wise — of becoming an extension of a broken system.
Upon further reflection, it’s clear that the broken system is ad-driven media on the internet. It simply doesn’t serve people. In fact, it’s not designed to.”

I encourage you to read their entire post for your own conclusions. So, with that said, I’ll now give you my “two cents.”

Is it not funny how the “ads for eyeballs” model which was the be-all, end-all model to $BILLION dollar riches and IPO cash out dreams suddenly finds itself being shunned (i.e., self implied “Needs another model”) by none other than a company whose CEO once founded one of social media’s most coveted “ads for eyeballs” companies? (e.g. Twitter™)

Now to be fair the article does in fact state 2016 was their best year yet, with “readers and published posts up 300% year on year.” Those are impressive statistics. Also, I don’t know anything other than what I read in the aforementioned post. It may be in fact this outlet wishes to transform itself, or its business model, purely for the sake of journalistic integrity. And if that is indeed the case I wholeheartedly commend them. Yet, what falls short via my acumen is the timing. Here’s the reasoning…

Let’s use just one of the said key metrics: “Readers.”

If an “ads for eyeballs” designed platform experiences a 300% year-over-year growth in the sole bedrock, fundamental, metric of the “ads for eyeballs” formulation. Would that not mean, or at least one could rationally infer, the YoY profits realized by supplying ads to a tripling of “eye balls” in one year warrants an explosion of generated profits?

For another sentence caught my eye which doesn’t seem to fit if readership was up 300%. e.g., “Even if we’re successful.”

This is a very critical point to ponder. i.e., If a 300% increase in viewership YoY didn’t move the needle as to not state “even” implying that it is not – than what would?

Again, for It needs to be repeated: The basic core metric that allows the entirety of the “eyeballs for ads” argument to even exist – is – the reasoning behind dismantling, and jettisoning one-third of the company?  Remember, they state, “Our vision, when we started in 2012, was ambitious: To build a platform that defined a new model for media on the internet.”

It can be reasonably assumed it did just that – and in spades! (e.g. 300% growth in “eyeballs” this past year alone.) And for that comes the conclusion to immediately lop off 1/3 of staffing and announce a complete change or overhaul to its business structure?

This is like stating (if we’re to take the reasoning at face value) “We’ve tripled the #1 key metric that supports (and advertisers will pay for) the entire “ads for eyeballs” model, and for that accomplishment – we’re downsizing, and laying off 1/3 of you. Great job, and here’s looking at 2017, cheers!”

Something just doesn’t square here from my perspective, or opinion.

Let me express it this way: What can be rationally inferred by anyone with just a modicum of business acumen in this underlying quandary? Or said differently:

What was the decision-making process that impelled a company to jettison one-third of its personnel along with simultaneously stating a dismantling of its former business model first (and that’s a very key point) not after it tried to change that very model as some form of “work in progress” putting what can only be inferred as an ever-increasing hardship on both authors, or content providers, If, the sole intention is to reward those content creators to begin with?

Is that not as they say “Throwing the baby out with the bath water?” Unless…

A 300% increase in readership didn’t mean squat to paying advertisers because – all they were getting was the bill for more “ad sales” and no sales. So they in-turn are now stating: Thanks, but no thanks. (Think P&G™ and its decision to jettison one of Facebook™ most coveted ad models)

Personally, I feel it’s more of this, than the former, and is becoming so prevalent, it can no longer be ignored. i.e., The writing’s on the balance sheets.

There’s a reason why I make this point. For I once was involved with advertising (albeit years ago) and actually ran and designed a campaign for a multi-national consumer brand which still runs to this day decades later. And it is this:

Advertisers rarely scale down or remove ad dollars from venues that produce sales. And what they surely won’t do, is remove or scale-down ads from a venue that can demonstrate increasing sales. Especially one that has shown a growth in audience of some 300% YoY. For if the audience has grown, surely, that implies any successful prior ad sales during that period should also have been the benefactor of explosive sales results. Maybe not 1 for 1 as in 300%, however, explosive in comparison YoY should be apparent nonetheless.

So in reaction to this – you’re now going to tell not only those advertisers, but also those which benefited by osmosis: Thanks, but we’re not going to take “that” money anymore? And along with it (as implied by how it was generated per the article) will more than assuredly see “readership” drop? Along with asking them to either continue campaigns or start anew?

How does that make sense from a business perspective I ask? Why wouldn’t an attrition model be implemented first? i.e., Make changes as you go, and as the “ad revenue” was still coming in, and scale down on a more favorable time schedule? i.e., Not jettison one-third of its employees onto the unemployment rolls right after the holidays. Unless? Hint: Maybe it wasn’t.

Again, if you take the rationale stated in the above article at face value? It’s very hard to infer anything else but. Sure, it sounds altruist and is absolutely fine if that’s the true driver. However, with that said, here’s another one of those very troubling questions that seem to pop into my mind which I can’t seem to jettison:

How are the remaining advertisers now going to view Medium? i.e., Is the remaining audience for 2017 worth what they were paying in 2016? After all – Medium openly stated or implied “that” prior audience is not what they want, and with it, will reshape into something different. That “different” can rationally be assumed as – smaller. Also: how are advertisers now to view all the other “ads for eyeballs” purveyors after this revelation? Are their sales metrics (i.e., eyeballs) worth paying for?

And it is there which lies-the-rub, for that is diametrically the opposite of everything “The Valley” currently stands on. Or, more importantly – is funded and valued by Wall Street.

And yet, here is Medium, itself a well coveted outlet of “The Valley” openly stating “ads for eyeballs” doesn’t work, even in the face of 300% eyeball growth, which is the metric-of-metrics of everything that is “The Valley.”

If I’m correct in my understanding of advertisers, and advertising? That “new vision” will not be well received in today’s business climate, for that meme was told, and more importantly – sold to them incessantly, fueling and enabling the entire “ads for eyeballs” model that supported multi-$BILLION valuations and IPO cash out dreams at their expense. Literally.

Again: now with Medium itself openly stating it doesn’t work? Or, at the very least, isn’t worth it?

Let’s just say for many of today’s priced for perfection “eyeballs for ads” companies? It may as well be another nail in the proverbial “it’s different this time” coffin. For this time – it may be advertisers themselves that are reading the “news.”

With all the above said let me clarify one point, for I’ve been asked this on multiple occasions whether at a speaking event, or by friends:

I’m not saying there’s no place for the “Ads For Eyeballs” business. That’s a foolish notion. You may in fact be reading this article on one supported by that very model (and if you are I encourage you to support those advertisers should you need of their services). What I am stating unequivocally is this:

The rationale that the “eyeballs for ads” model coupled with “it’s different this time” incantations was the “magic formula” as to engender social media companies, and other unicorns of “totally worth it” valuations for IPOs along with market-cap valuations of not only $BILLIONS of dollars, but $10’s, and for others $100’s of BILLIONS on its face was ludicrous at best – delusional at worse. Period, end of fable.

I used the word “fable” specifically for this purpose: What does “it’s different this time” have in common with “Once upon a time?” Hint: Reread the above paragraph.

I can’t help but to keep remembering back how similar this revelation is to another which I was taken to task by many a Silicon Valley aficionado when the announcement that Jack Dorsey would be CEO of two companies simultaneously. The rationale emanating from “The Valley” once again has that same ring to it. i.e., It is us, as in you or me, which just doesn’t get it. There are others suggesting Medium or others should now do some M&A as a result of this.

That might be possible, however, may I suggest a pause for anyone thinking about M&A in 2017 for this reasoning…

If the “eyeballs for ads” model is indeed broken, or at the least no longer the valued metric to warrant the taking of advertisers ad dollars? There’s a whole lot of “valuations” about to find reality at never-mind “bargain prices” rather, at “fire sale” offerings in the very near future. After all…

We all know what happens when someone yells sell “fire!” In a crowded trade theater.

© 2017 Mark St.Cyr

Is 2017 The Year Silicon Valley Experiences The Dark Side Of “It’s Different This Time”?

With 2016 now in the rearview mirror. The one thing that was supposed to be included in that vision was the successful resurgence of IPO’s across “The Valley”. 2016 was supposed to be “the year” of the comeback for unicorn cash-out dreams after what can only be described as a “not as advertised” 2015. For if one needs remembering: 2015 was the worst year for tech IPO’s since 2009.

Here’s another problem nobody seems willing to discuss: 2015 may have been the high-water mark going forward when compared to 2016. Yet, not too worry we’re told! For has been reported via many a media source 2017 is shaping up be? Hint: The year it comes back.

Here is a chart from an article just this past August titled “Tech IPO Clog Poised To Burst” To wit:

screen-shot-2017-01-01-at-9-11-21-am

The prevailing premise, once again, throughout “The Valley” is that “next year” should be the return of those unicorn dreams. After all, how could 2016 be any worse than 2015 was the premise at the beginning of year. The issue? Look at the above chart for clues. Or, as we like to say here in reality, “A whole lot worse!” For 2016 now makes not only 2008 look good. It makes 2009 look terrific in comparison.

Yet, this hasn’t slowed down one next-in-rotation fund manager to proclaim how “social” or “tech” is just “crushing it”. The real issue is that many who have “invested” based on a lot of this trite have found their portfolios have been the ones getting crushed. Case in point: Twilio™. To wit:

screen-shot-2017-01-01-at-9-50-47-am

(Source)

Now I’m not intentionally pointing out this company for any other reason than its IPO was proclaimed across the media and “The Valley” as to be “the” one as to show just how resilient not only the demand for IPO’s would be, but also how “worth it” their heralded valuations were. Once again, the problem? It did just that.

I have read articles emanating from “The Valley” as late as only weeks ago where it’s touted Twillio’s share price is up over 111% since it’s IPO. Sounds great, but it’s not only disingenuous, it’s damn right shameful to use that as the sole metric for validity to the premise that IPO’s or “tech’s” resurgence when looking at the above chart. For if you are one of the unfortunate that bought shares on the open market only a few weeks after the IPO? There’s no “crushing it” gains for you – you got crushed, with probably more pain to come.

There was also another “It’s different this time” proclamation which was supposed to prove 2016 to all the “nay-sayers” just how much people like myself “don’t get” social/tech/The Valley/etc. For it was we who needed to see the brilliance of their decision-making processes. And none was so heralded as to what 2016 was supposed to be than the resurgence of Twitter™, with its now multi-tasking CEO.

How did all that work out? Well, as they say in “The Valley”, let’s look at another “picture” shall we?

screen-shot-2017-01-01-at-9-57-52-am

(Source)

Again, all I’ll say to the above is this: If this is what the term “crushing it” now means in “The Valley”? I envision 2017 is going to take crushing up to 11!

So with all the above for some context. No opinion for comparison would be complete without also including the “holy grail” of everything tech/The Valley/IPO’s, and more. Let alone all that it is said to encompass: Facebook™ (FB).

screen-shot-2017-01-01-at-10-55-38-am

(Source)

Now one couldn’t be held for lying to state FB stock is indeed up since the end of 2015. However, would that be telling you the “truth” if one was to only state that one metric? Especially if you were trying to get a correct handle of the “health” or “potential profits” still promised in the “everything social” land of riches arguments?

As I highlighted on the chart above: If you purchased shares on Feb 1st of 2016 after what was heralded as an earnings report that “crushed it”, and was touted as (here’s that term again) “the” earnings report to shut all the “doom-and-gloomers” up once and for all. Guess what? Hint: You’re right back where you started.

And for those who decided 2016 was indeed the year where “tech” resurged and was caught up in the whole IPO of the afore-mentioned Twillio in July? It’s more than likely FB in 2016 is now a wash at best, a painful loss at worse. For it fell over 15% lower a mere 45-ish trading days later after those “lifetime highs” to end the year.

However even that doesn’t really encapsulate the whole. For if one can remember (after all it was just these last few weeks) the “markets” have been on an absolute tear to make (once again) never before seen in the history of mankind highs. And what was FB’s valuation doing during all this? Hint: Look at the chart above. e.g., The exact opposite.

Another meme that keeps getting perpetuated is the argument “There’s still so much V.C. capital just looking for investment it must surely mean these companies (i.e., The Unicorns) have legitimate ‘so worth it’ valuations for further cash-out riches. This alone proves the nay-sayers don’t know what they’re talking about.” To which I say: Really? Then let’s argue a few points shall we?

Let me start with this one point: If I said to you, “Hey, want me to show you how to make $1.00 into millions”? You’d probably wouldn’t even dignify the response with a no, you’d just walk away for you knew (at least I hope you would) if it seems to good to be true, it probably is. Now, with that said answer this:

How is “investing” some trifle sum (e.g., a few $Million) which instantaneously gives one the ability to claim they’re worth $Billions any different? Couple that with – the metrics for those claims are all based on “because they say so”.

Yes, the accounting for said valuations are based on 1+1= whatever we say it is. Not anything which is based in reality as you or I may understand. Or said differently: It makes Non-GAAP accounting look down right conservative in comparison.

This is the dirty-liitle-secret in the underbelly of all that is “unicorn” in my view. And sooner, rather than later, I believe this spurious type of accounting will someday find its way into the courts and be abolished. However, that’s for another day.

If you want an example? Try to square-the-circle that Theranos™ (remember them?) along with its founder Elizabeth Holmes was not only said to be worth, but was proclaimed throughout the business media that she personally was worth a fortune of $4.5 BILLION dollars. While the company itself was worth some $9 BILLION based on what I found to be one of the best lines (as in the form of a question) I can remember that came back in July from a Fortune™ article. The line?

“How on earth did it [Theranos] manage to raise $400 million in funding at a $9 billion valuation?”

Yes indeed, it was a good question. Problem was people like myself have been asking that of unicorns since 2008. Not after one of its most proclaimed archetype’s crashes and burns where even the likes of Icarus himself might marvel.

And speaking of “unicorns”. As 2016 has now come and gone what are we supposed to infer by the ever-increasing troubles emanating from the prized “decacorn” holding stable? (e.g., The Uber™, AirBnB™ types et al)

It would seem with every passing day (which has now morphed into years) waiting for that “perfect” cash-out point as to IPO seems to only be met with one reglatory hurdle after another. Which could, if found the ruling/rulings go against them, eviscerate their valuation-gone-wild models/metrics that would make even a glue factory blush for efficiency.

Uber is being sued (again) based on workers wages, classification, and more. China is now an after thought which in 2016 was supposed to be its primary goal if I’m not mistaken. And AirBnB still has its regulatory hurdles to be weeded out through the courts. If many of these go against them, then they face an all too, and very real valuation problem do they not?

Oh, yeah, and don’t forget “decacorn” stands for a unicorn worth $10’s of BILLIONS in valuation terms. You know where “The Valley” states reality for making the argument that a so-called “glorified taxi-app” is said to be worth more than the likes of GM™, Ford™, Nissan™, Hyundai™, and others, because “Its disruptive”, so of course “It’s totally worth it” and it must be worth more.

That’s not hyperbole on my part. You can find those exact words and arguments across the media and especially anywhere that’s Silicon Valley centric. Again, truly ponder that last statement. And if in the end you can’t shake an image of a sock-puppet  from entering your mind? Don’t worry, I believe that proves you can still think clearly and understand true reality.

So now why has all the above happened? And why do I believe there’s far more of a “dark side” to all this “it’s different this time” fantasy world that Silicon Valley or “The Valley” as I like to say hasn’t a clue is on the horizon?

Here’s the equation I believe will not only send shock waves, but will bring down many a valuation edifice within “The Valley” in 2017. And here it is:

First: The Fed. And Second: Rate hikes.

Two very short sentences containing nothing more than two words each but their implications could have exponentially explosive results. For what they portend is that “It’s different this time” may indeed be exactly that.

What I hoped you may have noticed during this discussion is the one thing myself and very few others pointed out would happen if the hypothesis we’ve been articulating over the last few years was correct. That hypothesis has always been “Without the Fed. pumping in unlimited funds via the QE programs, and a “death-grip” to the zero bound (aka ZIRP) the first ones to show how much of a facade these “markets” where would be seen directly in the “tech” space.

Notice anything similar in any of the above? Hint: Without QE, everything came to a screeching halt at best, and a complete reversal of fortunes for many at worst. And I believe it’s only just begun. Why?

This past December, much like the one in 2015, the Fed. once again raised rates. However, this one in-particular is the one that may catch a lot of onlookers (especially most of the financial press) by surprise, and it’s for this reason:

If you watched the presser (and I suggest one do just that) following the rate hike given by Ms. Yellen, one thing is very front and center: She vociferously argued, or defended the idea of not only raising, but raising more than many presumed (now the working number of hikes is up to 3 from 2) coupled with her again animated defense of possibly even raising more, and more quickly should the Fed’s assessment to anything “fiscal” coming out of congress warrants it. When only weeks before she was arguing a possible need to run a “high-pressure” economy. That in-and-of-itself is a 180 from her (e.g., The Fed’s) implied stance.

(Just to clarify: “vociferously” and “animated” for Ms. Yellen is my assessment as I compare to her characteristic usually monotone readings or discussions at other events. Your interpretations may differ.)

So now with the 800lb. “It’s different this time” gorilla in the room I’d like to make a hypothesis for you to consider. I’m not saying “prediction” because that’s for fools. Nobody, and mean just that no-body knows what the future holds. All we can do is “look at the charts” (i.e., teas leaves) coupled with our best assumptions of what is correlation and/or causation, filtered through any acumen we might have gained over the years, then hopefully put ourselves in the best position for either possible gain, or to sidestep harm. Nothing more.

If we look only at the above charts to my eye one thing can be rationally inferred: Without the Fed. the “everything social” argument is D.O.A. Period.

What can also be logically asked is this: Why did FB’s valuation begin dropping and has never recovered during which supposedly as we were all being screamed at that “They were crushing it!” in every metric or mobile assumption. Again, it was touted as “You nay-sayers just don’t get it!” And yet, their valuation kept falling? And continued in the face of a rally into year-end that’s now gone into the record books under the classification of “historic”?

Was this in part due to a reasonable assumption that the one buyer who was buying so much stock in FB during 2016 promptly decided if the Fed. was indeed going to raise it couldn’t buy any more out of concerns of future funding costs?

Oh, and just to clarify – that buyer was the Swiss National Bank. Second to none in its FB shareholdings. Yes, even to Mark himself.

And if one can answer “yes” to that question in even a remote possibility, then what does that do to a whole lot of other companies within the “markets”? Hint: Here’s just one article for you to ponder coupled with the above implications. To wit:

“Mystery” Buyer Revealed: Swiss National Bank’s US Stock Holdings Rose 50% In First Half, To Record $62BN”

Once again I can’t make this argument more forcefully than what the “tea leaves” or “charts” imply surrounded with the rationalization that the Fed. may indeed be far more aggressive in hiking with this new administration in power than the previous. And if that has even the remotest possibilities of being true? Based on what one could reasonably infer that took place over 2016 in total?

“It’s different this time” may take on a meaning never dreamed of within Silicon Valley, “The Valley”, and in particular, the “markets” as a whole.

And if I’m wrong, I’ll just leave you with one last point to consider…

If there’s so much more room to go in the “everything social” model as is professed via the media and every next-in-rotation fund manager that can elbow their way onto a television set. As one of my favorite Batman® characters was fond of saying, “Riddle me this!”

If FB, and or the “everything social” model is still in its nascent beginnings with so much more room to grow? Then why was Mark Zuckerberg ready, and seemingly willing in 2016 to sell his shares, and leave FB with the very real possibly of having to give up control to go into politics for two years? You know – if FB is the end all, be all of the “everything social” argument?

All I’ll say is this: “The Valley” had better be hoping – it is a whole lot different this time – than what it may end up being.

We shall see soon enough.

© 2017 Mark St.Cyr