Thursday, December 30, 2010

Time’s 2010 Person Of The Year – The Peaking Of The Facebook Phenomenon

The creator of Facebook as person of the year?  Are you kidding me?  We are living through the most interesting-distressing times around the globe seen in what may be hundreds of years and Time chooses Facebook’s creator?  Does Time have a pulse?  Is Time a news magazine?   Facebook is now seven years old.  Everything about Facebook has most likely been discounted.  This is yesterday’s news.    

It has been some time since we have written of the advertising bubble but when I saw Time’s announcement, I knew the doom associated with being on the cover of Time was a slam dunk for Facebook.  Make no mistake, we are in an advertising bubble and Facebook is a huge beneficiary.  

Any web site or web service which relies heavily on ad revenue is going to have an interesting future at some point as this bubble pops.  (It already would have except taxpayers have bailed out profligacy of political and banking idiots.)  And how does Facebook pay for its massive infrastructure?  The advertising bubble. 

We also highlighted much of the dynamic of unsustainable businesses in our Marching Morons post.  ie, Innocent people are forced to move from bubble to bubble to find economic opportunity and employment as criminals (Marching Morons – banksters, politicians and monopoly business leaders – aka bureaucrats) rig our unsustainable economy.   In other words, the vast majority of success in today’s world is transient and is being in the right place at the right time.   Look at the internet bubble or the housing bubble.   Look at all of those who were considered brilliant because they opened businesses that served IT during the mid to late 90’s or who similarly brought companies public during the internet bubble, were just riding a massive scheme of lies.  Time was duped by both.  

I knew two guys who started an IT consulting business and grew it to a 400 person organization with offices in quite a few cities over a period of five or so years in the mid to late 90s..  When the bubble popped, they went under and so did a substantial amount of their wealth and all of their income.   But during the bubble they were considered brilliant.  They were even offered tens of millions of dollars to sell their business.  (The corollary to the mergers and acquisitions bubble we have written about should be self-evident on this smaller scale.  These companies – the acquirers - will eventually be selling off the underperforming assets acquired during the criminal mergers and acquisitions scam.   And private equity, who fueled this scam, will take a bath along with them.  The end of big is nigh and so is the end of financial stupidity. )  This story could be repeated thousands upon thousands of times affecting millions upon millions of people over countless bubbles in the last 25 years.  

Facebook’s revenue is a function of unsustainable ad spend driven by the profit bubble.  And as targeted marketing and personalization take hold, as we said it would years ago, Facebook will face a double whammy of an ad bubble collapse and new technology which allows advertisers to spend their money in a more productive manner.   And when the profit bubble collapses, they will have to seek a more productive use of capital as a self-fulfilling prophecy.

Mark Zuckerberg is going to wake up one day and wish he had sold Facebook for the same reason as all of those other failed ventures – he’s simply riding an unsustainable bubble.   The key to success in the rigged economy is knowing when to walk.  And while Facebook may survive for many years, eventual  declining ad revenues will lead to either fee-based services, loss of services, less new capability and ultimately, it’s marginalization by the endless drumbeat of innovation from other companies.

posted by TimingLogic at 10:39 AM