Dear Facebook: You’ve Got Mail

First, a bit of prologue…

It wasn’t all that long ago one of the most powerful digital ads-for-eyeballs platform ever created appeared as if it was the unstoppable juggernaut all the talking heads and analysts reigning on Wall Street declared it to be. Two of the most powerful reasons for why this mega-capped behemoth was not only here to stay, but was now the only company poised to outperform and capitalize on digital advertising in ways others could not was…

  • The new digital age of advertising allowed for precision ad placement, in front of the most qualified prospects for the advertisers product via data collection of attributes and viewing habits like never before.
  • They were so dominant a player, owning (and constantly buying) the very revolutionary assets that would propel it for years to come, that advertising anywhere else would be considered misplaced at best, and “not just getting it”, (“it” being advertising in this new age of digital) at worst. For this was the day and age of targeted data for ads.

Sound familiar?

It wouldn’t be surprising for most reading the above to think it’s about Facebook™ (FB). This issue is that the above is nothing more than my paraphrasing from a previous article of what the tenor and tone was from Wall Street analysts, fund managers, pundits and more paraded across the entire business/financial media landscape in reference to AOL™, right before it all fell apart.

As I’ve always contended when it comes to their similarities, invoking the old adage: History doesn’t repeat, yet it often rhymes. When it comes to these two? It seems to be in an uncanny, exacting rhythm and “rhyming” via an auto-tuner. The similarities are that striking. And today seems more in-tune with the past than ever before. Here’s why…

What is Facebook’s real business model? Hint: Ads for eyeballs.

What was AOL’s real business model? Hint: See above.

Now you’ll hear boiler-plate mumbo-jumbo from all ends of the spectrum that’s it’s all about: “building relationships,” “connections,” “user growth,” blah, blah, blah. Here’s the truth – if those “connections” can’t be served an ad that can be counted, tabulated and billed for? The relationship between user – platform – and advertiser is both meaningless and more than likely – worthless. Period, full stop.

In other words, nobody (as in advertiser) will pay FB for the privilege to connect the millions of 13-year-old, selfie-extraordinaires showing off their latest “Kardashian” imitation, or the other myriad of useless sharing pics from the “what’s currently on my plate” crowd unless they can be served, in tandem, with (and charged for) an accompanying ad of whatever the advertisers preferred choice of “bot” decides is relevant.

No ad? Better get used to sending email once again, because that, for at least the foreseeable future, will remain free.

FB without ads, or better yet, any discernible reduction of said ads? Hint: There is no FB. At least in the way it is currently known. Just – like – AOL.

Back in the late 90’s, into the early 2000’s, AOL was the, and I mean just that, the dominant ads-for-eyeballs business manifestation the world had ever seen. Never before was the idea of, “Digital,” with all its ancillary ways of calculating, distributing, collating, subjugating, and more such a dominant theme for investing consumption. This was, in many ways, told-and-sold in much the same fashion that FB and the everything “mobile” fairytale of advertiser rewards and riches of today is. Again, emphasis on told-and-sold.

For those of us old enough to have lived through and remember the dot-com era,  we remember all too well the rise and fall of the entire complex culminating with what appeared to be the last remaining superpower of all that was “digital”, known as AOL.

People, investors, pundits, and more were left aghast (and lighter, as in much lighter of their account balances) as they watched this seemingly, once unstoppable force go from Last-Act-Standing that was now going to reap all the rewards of such a title – to become the poster child for investor keel-hauling faster than one could blurt out “You’ve Got Mail®.”

Is FB in the same position? That’s for you to decide, however, what was the force that brought on the decline of AOL? Hint: Ad revenue misses. Why? Because ad revenue was its business. And AOL, much like FB’s stock price, at that time was considered “priced for perfection.”

In other words – any hiccups were going to be dealt with severely by investors. And if there is any question as to if the same overhang of how “hiccups” like those reminiscent of AOL prior may be dealt with for FB going forward. All one has to do is look as last weeks pricing action for clues. Hint: In an ever rising market – Nobody came in and BTFD of nearly 5% in FB. If that stands? Can you say “You’ve got problems?”

The reasoning: This current “market” rise is (once again) all about positioning, as in, buy everything regardless of price, for earnings exposure. Conjecture of course, but what is not is the fact to which it appeared in near relentless, unstoppable rising “market” backdrop – nobody seemed willing to BTFD of FB at nearly a 5% discount. The stock just seemed to sit there and vacillate.

This is an important distinction that is anathema to the buying frenzy currently on display within the “markets.” There’s a long time from here till when FB announces its earnings. But watching for further clues is paramount, in my opinion, for those looking.

Again, if the stock price just sits at current levels (or worse goes lower) in a “we’ll wait and see” posture till earnings are actually released? That is a change worth noting, for those actually interested and looking for signaling clues. For it’s not like we haven’t seen similar aberrations before. There have been others for this space, and not all that long ago.

Remember LinkedIn™? You remember don’t you? This was that other juggernaut of social media (which was stroked ad nauseam via the mainstream business/financial media) that was, for all intents and purposes. everything that FB was not, as in: enterprise subscription revenue. Where FB was ads-for-eyeballs.

That is – till its model missed projections and plummeted 43% and remained there till Microsoft™ came in and basically bailed it out.

So now the obvious question is this: How will the future projections for the ads-for-eyeballs model now be embraced? After all, Mark’s now professed goal of (paraphrasing) “Making FB great again” inherently conjures up the undeniable fact there will be less ad space available for those remaining eyeballs. Hint: Wall Street doesn’t take too kindly to “tepid” or “reduced” forecasts. Again, see LinkedIn for clues.

The everything social paradigm, as well as business model has been collapsing for years. (See Snapchat™) If it wasn’t for central banks largess still sloshing around the remaining few would probably have already been bought up at heftier discounts than where they currently stand. FB, much like AOL is basically the “last man” standing.

Growth of any remaining ad dollars in FB I have contended, ad nauseam, believe to have been the result of consolidation in a last-ditch effort to possibly get anything out of this last holiday shopping season via desperate retailers. But the season is now over, and with it I believe, so too, is any remaining ad revenue to just throw in a “hope and pray” manner.

If that is so? May I suggest looking back to AOL once again for any clues, because there too everything was supposedly “different” at that time.

On an aside note, just for some further contemplation: Is it not just a little bit coincidental that at about the same time, say oh, a few months back, when it’s been reported that FB had been running and testing different algorithms to its feed which showed publishers would invariably get reduced traffic – Mark just so happens to announced he’d like to unload up to 20% of his stake in FB? You know – for charity’s sake.

Or maybe, that’s just me.

© 2018 Mark St.Cyr