When I arrived home from work the other evening, my 14 year-old announced to me “I deactivated my Facebook account” with a smile on her face. I asked if there was a problem, or was she a victim of cyber-bullying. She responded that she didn’t want to be a part of the daily drama. A very mature statement from a young person, the type of which we all assume is one of the major drivers of this social site. So what can an investor learn from this young person’s actions? Statistics show only about 20% of users are 13-17 years old, more than one-third of users are over the age of 35 with nearly half of the users between ages 18 and 34.
Facebook has become a cultural phenomenon in just eight short years attracting at last count, over 900,000,000 registered accounts. Users have the opportunity to interact with people they might not reach out to in the real world. The ability to engage users on many levels from sharing photos, videos, personal likes and dislikes, games and more, keeps users on the site for an average 30 minutes per visit.
Zynga has made interactive gaming an addicting part of being on Facebook with games like Farmville, Mafia Wars, and Poker. Rankings are posted while opponents are easily found and compete with other users. This helps keep users on the site and brings them back with constant updates pushed to mobile devices or email.
This is all good news for advertisers. Users are able to connect with people to whom they might not otherwise have been able. I’ve heard of recently widowed people reconnecting with high-school sweethearts. Sharing photos or stories with family and friends has become a way of life. Distance from relatives becomes somewhat irrelevant. It feels good to be wished a happy birthday by 50, 100, or 500 of your “closest friends.” We all know the drill.
Are investors willing to support a company that causes, or tolerates some of the social injustices and privacy issues reported in the news almost daily? Young people are faced with unbelievable social challenges today and communicate their thoughts and opinions in ways I could never have imagined when I was 18. The need to be popular, fit-in, or just be liked (or loved) is a natural human instinct. Facebook fills that void virtually. What if things go wrong? A misunderstanding or a feeling about a peer that might have been shared with a buddy in private, is now made public by one click of the mouse or smartphone. A harmless teen prank before becomes a teen post today and sometimes the catalyst for depression or worse; a teen suicide. The peer pressure to belong and pursue new “friends” is enough to keep people from deactivating their accounts and continue this cycle.
Teachers ranting about students, students ranting about teachers and parents and other students, all become a firestorm of gossip and hatred. People comment about other people they don’t even know to show empathy. People will post about people they don’t know as a way to show support for their friends. It seems very anonymous while posting from your home or while on your mobile device. I heard a parent talking about how their child will be deleting their Facebook page before their senior year so that potential colleges can’t use what they might find there against the student. Employees have lost jobs because of rants against their boss. Prospective employees have been passed over because of photos or comments discovered online by their potential employers. Rocky marriages end in divorce because of the virtual attention (sometimes leading to affairs) received online. It is possible that Facebook virtually accentuates reality. And to that point, reality isn't all bad.
Facebook is a very young company that is still growing and finding ways to monetize themselves. The brand is huge, although weakened by some of the issues I’ve mentioned above. Some big name investors (ie. Mark Cuban) were attracted to the stock initially for the same reason Facebook is popular today...everybody’s doing it! Jaron Lanier, inventor of virtual reality and author most recently of “You Are Not a Gadget,” said on CNBC,“The money is in the product, and the product is the user.” Advertisers will pay to target exactly the user they are looking for from a vast data source provided by Facebook. However, there are false accounts, users with multiple accounts, unused or forgotten accounts, and the potential for “padding the numbers” because there is no way to distinguish between actual and fake users. This makes it difficult for investors to value the company accurately. The information available is what the user choses to share on the account. However, accounts can be made up of 10 year-olds who claim to be 13, singles who claim to be older, younger, better looking than they are, and users who want to remain anonymous. I’ll look for Facebook to create more of a social marketplace where applications or services are created and sold to other users similar to Apple’s App store or an online auction house like Ebay with a social aspect added. There needs to be an exchange of money that rewards people who can operate their business’s within Facebook’s platform like Zynga. Facebook should then enhance that platform and take a commission. Money!