Michael Gracie

If you’ve already planned your weekend, keep reading. Otherwise, you have more important things to do.

• Why the rumors about the Mormon Church buying Facebook made sense - it’s about genealogy business. Personally, I think the Mormon Church is run by very smart folks, and very smart folks don’t buy businesses that don’t justify their valuations via profits.
• In defense of short selling. It only needs defending because the powers that be want to ensure folks the “buy and hold” strategy they were “sold” doesn’t come back to bite.
• A state record channel catfish was caught on a Barbie Rod! I wonder when Mattel will start dumping last year’s model on eBay.
• The CFTC found that a select few speculators were dominating the oil trading market, but they also noted that those few didn’t really manipulate prices. I’ll bet that if oil was trading a $200 a barrel right now, some of their “findings” might have been a little different.
• Banks are still lining up at the pig trough discount window, and their wealthy clients are feeling the pain as private-equity capital calls come in. Didn’t those clients know the banks lent out all that money they were supposed to be safeguarding?

That in turn brings up the question…

• How safe is your brokerage account (yes, brokerages use securities as collateral on loans too)? Guess that depends on your brokerage…

Source: Weiss Research, Inc.

Adieu.

Business Week notes:

The prices for Facebook shares in these transactions are far below the $15 billion level. [Laurence] Albukerk, the founder and managing director of EB Exchange Funds, says two current directors and one former executive recently contacted him about selling some of their stock for a $5 billion valuation. He also says two investment firms have bought large chunks of Facebook stock at a valuation of about $3.75 billion.

$3.75 billion. Not too far off the “imperfect mashup” estimate.

UPDATE: Fred Wilson sheds light on the discount. In his eyes, it’s just compensation for a lack of liquidity…

As exits via IPO and M&A become more and more difficult, I sure hope the secondary market will step in to fill the gap.

…and it seems, a sign of the times.

I suspect we’ll soon see some type of organized, internet-based exchange(s) pop-up and try to fill the gap, although I also suspect that most attempts at intermediation in a market reliant on close personal relationships and confidentiality will also fail. But, there is probably some business out there for all the deals that aren’t Facebook-level in profile.

Forbes: Digital goods–and pets–are coming to Apple’s blockbuster device.

As a solution for the rumored pathetic MobileMe service Apple should buy Facebook and enable users’ ability to wipe poop on each others iPhone screens.

Instant enterprise ready, baby!

UPDATE: There’s a heck a goodwill write-off waiting there too.

UPDATE 2: Even better - sell the poop for $1,000.

A what-if, as in what if this was now April of 2000

Company valuations are what the market says they, until the market says otherwise. People learned their lesson (at least with internet investing) in 2000, and there has been a dearth of big internet IPOs since - with that lack of offerings comes a dearth of information. What back in the last internet bubble could be gleaned from checking your brokerage account now comes via private investment extrapolation and backchannel chatter. Internet companies (and in particular the social network crowd) are presently illiquid private investments whose valuations are prone to ambiguity.

Take Facebook for example. The website received a $250MM investment from Microsoft late last year, and several monied individual investors (and a few institutional types) quickly followed-on at purportedly similar price tags. This investment pegged Facebook’s worth at a cool $15 billion, and social networks and related “applications” have been nipping at their heels ever since. However, there has been little information to judge the true value of the company - Microsoft also has an exclusive advertising deal with Facebook and many agree that there must be some strategic value associated with that. Still more debate whether that Microsoft investment was the true sign of “bubbledom” number two.

A few weeks back, Mike Arrington of the TechCrunch blog took a stab at valuing a number of social networks, based on an advertising expenditure survey and ComScore statistics, and a few recent transactions in the space…including Facebook. Silicon Alley Insider gave the work a general thumbs up, and then proceeded to pick apart some of the advertising assumptions (as well as the real value of Facebook and some others). I enjoyed the number tumbling too, but noticed something different was missing. Time.

Time is a cure all (although it also puts you in the grave). Time is also a critical component of valuation. When time races by in the public markets, valuation comes instantly. But when it is accompanied by fits and starts, like in the private investment markets, valuation is harder to come by. With those prospects in mind, I decided to revisit Mr. Arrington’s data to see if it still jived just weeks later. I had some more of that “backchannel” information to work with too - some rumors about brokered sales of Facebook stock - via Arrington himself.

The original valuation results via TechCrunch came about like this: Arrington first developed a “raw score” for each site, based on advertising expenditures across the internet, applying per user averages (using ComScore data) to each social network, and then factoring in the latest transaction data for three of the sites, Bebo (March ‘08), LinkedIn (June ‘08), and Facebook (October ‘07). Valuation based on those transactions is depicted below:

Subsequent to this analysis, it was revealed that insiders at Facebook might be trying to sell their shares. The rumored asking price was putting Facebook’s valuation at somewhere between $3 billion and $4 billion. There’s now new information, and we won’t bother going into what could be gleaned from knowing insiders are attempting to sell at a discount - that’s a story for another time. Nevertheless, taking this new data (with optimism, at $4 bil) and inputing it into Arrington’s model, the mean values of the 25 internet companies listed would look more like this:

In addition to reducing composite mean value by almost $15 billion, there’s another adjustment that might be worth making. After Arrington created the “points” system, recent deal values were applied to create a dollar value per point - Bebo, LinkedIn, and Facebook received $240.78, $1,325.00, and $1,467.16 per point, respectively. Bebo seemed the bargain. But based on the latest data regarding Facebook, it would now get $391.24 per point. Now LinkedIn looks like the outlier - furthermore, their deal was completed while the Facebook valuation was still firmly on investors’ minds. If we tossed in the New Data Discount Factor (copyright, me…wink, wink AP), LinkedIn falls in line: $391.24 / $1,467.16 = 26.67%. Then $1,325.00 * 26.67% = $353.33. Some will argue that LinkedIn’s professional userbase should be more valuable than the playgrounds - my contention is the “kiddie sites” have turf encroachment in mind; as well, I know plenty of people who still use LinkedIn’s free offering - LinkedIn is surely chock full of smart, saavy internet users that know how to ignore ads, meaning they are subject to the whims of the ad industry and its market prices like everyone else. Failing that, the numbers simply look more reasonable side by side.

Recalculating with the latest $/point for LinkedIn and we get:

Total downward revision under this simplistic analysis - roughly $28.4 billion.

None of this is mathematically perfect - nor are its assumptions. But I believe it sheds some light on what investors might be thinking about if there was a public marketplace full of these social networking sites, consistent with the last. One of free flow of financial information, instantly recognizable and actionable (and most assuredly so on rumor and innuendo). One that wound up looking like this:

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This morning’s MySpace note reminded me that I had some housekeeping to do. One of the duties was to delete a few social networking accounts - I don’t use them and likely never will, preferring the dynamics of voice intonation and facial expressions over web pages. This task, however, proved more complicated than I thought.

I’ll toss out a caveat - MySpace was a cakewalk. I logged in, and clicked on account settings. The “delete” link was easy to find, and I clicked it. The page asked me in no uncertain terms whether I wanted to do this. I pushed the equivalent of the yes button. Thirty seconds later I received an email with another link to complete cancellation. I click that, push one button, and it’s done (or at least promised within 48 hours). Seconds later I notice that the MySpace messaging account I had input into Adium (but never actually used) had gone offline. I was now pretty certain my account had been taken care of.

On to Facebook…I am now reminded why I avoid signing up for too many services on the web - some are simply run by jackasses.

First and foremost, trying to find a link to delete your account within Facebook is kind of like trying to find a prostitute inside the Vatican City - you’ve heard rumors it’s possible, but nobody is pointing the way. I wound up having to run a Google search to acquire this:

http://www.facebook.com/help/contact.php?show_form=delete_account

So I click said link, and wind up at a page that tells me I need to log in. I enter my log-in information, but instead of getting redirected to the page I previously requested - you know, in the same sort of manner virtually every other web service on planet Earth operates when you click on a link that requires prior login - I wind up at a generic contact page. Furthermore, the “Issues” drop down list of the form now staring me down doesn’t even contain a selection for “delete account.”

I have to say I’d actually thought of writing a desktop script to repeatedly request account deletion, but soon realized someone else had probably tried that. How do I know? Well after finally reaching the proper page and requesting account deletion, I was met with this message:

Thanks, your inquiry has been forwarded to the Facebook Team.

At that point I realized I was running late. So I walked the dog around a few blocks - when I returned, this was sitting in my inbox:

Hi,

The Facebook Team has received your inquiry. We should get back to you soon. In the meantime, we encourage you to review our Privacy and Security Help page (http://www.facebook.com/help.php?page=433). There, you’ll find answers to many common questions.

Thanks for contacting Facebook,

The Facebook Team

It didn’t take a deep investigation to realize this was an auto-generated message. In addition, the return address had been purposefully obfuscated to either prevent a reply or keep damn good track of who did reply:

privacy+nl8qtsg@facebook.com

I then run through the same process roughly ten times - hitting the delete account page and proceeding - hoping the “Facebook Team” truly gets the message. Then I run out for breakfast. When I returned, there were no new delete account messages waiting for me - someone has obviously tried the delete-account-many-times approach, and Facebook has taken appropriate measures. Several hours later my account was still active.

Conclusions:

1) Facebook goes to great length to prevent you from finding a way to delete your account. Links are extremely non-obvious, and the site purposefully tries to circumvent your reaching the page. You are forced to find a link to delete from outside the site, and make sure your are logged in BEFORE you can properly access said link.

2) Facebook communication makes them sound apprehensive about deleting your information. They may claim that this is for your own protection, but I consider the sequence and tone more that of one that wants to carefully review your information first, just in case there is something of value to them within.

Keep in mind - you don’t have this problem elsewhere. I’ve been plenty of places where going through the delete account process gives you fair warning, just before your account disappears. I’ve got MySpace on the tip of my tongue…cripes, even Google lets you delete accounts and the result is instantaneous. Finding yourself in the position of having to wait for some “team” to “get back to you soon” is more than mere bullshit.

You know what they say…if it looks like a duck, and quacks like a duck…

Then don’t forget your waterfowl stamp.
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And what about the app providers themselves

Kristen Nicole asked: “When Did Facebook Get More Spammy than MySpace?” It’s all the buzz since the BBC reported that a widget third-party application can be used to gather personal data on its users - Facebook security.

Why there is an expectation that social network abuse wouldn’t grow inline with network expansion itself I cannot answer. Maybe it’s the morass of privacy settings available to the user - kind of like a security blanket even if you don’t have the time or the inclination to work through them all. Could it be the consistent public relations byline coming out of the organizations themselves? Or maybe it’s the constant buzz from the blogosphere and media. Personally, I expected the spam.

Nonetheless, I’m first to point fingers at the buzz. Quick and dirty searches for the two kings, associated with the word “spam,” produced the following results:

• ‘Facebook spam‘ - 7,330,000 hits
• ‘MySpace spam‘ - 6,560,000 hits

Not really much of a winner here. While even my own search results show Facebook in the lead, 10 hits to 2 hits, those figures are statistically insignificant. As is, I believe, the concept of spammers doing measurable damage inside the networks.

What I’d be more concerned about is this…

Facebook (and I’m sure MySpace) has the resources to put the kibosh on these issues (and Facebook is already claiming they pay careful attention to potential problems, although some of effort is aligned with natural attrition). But what about the application providers themselves?

The prevalent business model for the apps seems to be new media targeted marketing (i.e. internet advertising) - the apps/providers are collecting data…right? How good is their security? And how long before malcreants start mugging them instead of chasing their tails inside the fortresses?

Mr. Frommer says:

There’s a big future in distributed storage and computing, and Amazon (AMZN) is on the leading edge. Nimble startups benefit any time they can focus more on building their companies than building their server infrastructure.

I’ll add that some of the aforementioned companies suffering don’t have discernible revenue models (i.e. they are “working towards scale!”). It would seem that having to rely on cheap third party storage services might put a monkey wrench in that plan, at least every now and then.

Meanwhile, Markus Frind, who runs the highly profitable PlentyOfFish dating site on a quarter rack of servers (i.e. “scaling the bank account”), notes that Facebook is making heavy capital investments and coming up heavily cash flow negative as a result.

Where’s the happy median? Or has someone already patented it?

Quick answers and not-so-quick speculation.

Barron’s: Google points out it isn’t doing so hot.

Alley Insider: Alas, the social network side of things is not up to par.

ZDNet: Not good, and Google is disappointed with the MySpace deal.

Techdirt: Cutting to the chase - it sucks.

And…Facebook isn’t looking like the grand saviour either.

Meanwhile…some folks are optimistic - Lookery is chasing the same kind of deals with social networks, while the GOOG says they’ve seen no impact from the economic downturn.

I’m on the fence. Click fraud is up, and the internet advertising king’s growth is slowing significantly - if they can’t make it all work, who’s going to? Microsoft may be buying Yahoo!, but Yahoo! has only ancillary properties representing social networking success while Microsoft seems to have significantly overpaid for what they have on the plate already.

I’m betting an upstart will hit the street with something truly unique in the way of monetization, and it will charge up this space the way the GOOG did with search. The incumbents should be looking over their shoulder frequently, as there are no barriers to exiting their networks.

Sixty seconds because it’s 1) very short, and 2) if you concatenate “60″ and “Minutes” on a blog the chances of getting sued for trademark infringement go up dramatically.

I didn’t see Leslie Stahl’s segment with Mark Zuckerberg, so I’m relying on others…

And then there’s the real gem from the online debate - a cut to reality from Michael Learmonth of the Alley Insider. After noting that the interview had the worst ratings of the year, Learmonth explained why:

…but it may also be due to the fact that (shhh!) outside of the certain corners of the Internet, no one cares that much about Facebook.

Mr. Learmonth gets the Pulitzer Prize for Truthiness, I bet.

UPDATE: Mike Masnick of Techdirt called the Hodgkinson hit piece “utterly ridiculous” and “shoddy” journalism. Amen to that.