May 13, 2012

Facebook IPO--Love It, But Leave It

With the Facebook IPO scheduled for this week, valuing the company at as much as $96 billion, many investors according to Bloomberg BusinessWeek (11 May 2012) see this as overvalued.

Facebook will be the largest Internet IPO in history, and would be about 4 times as much as Google was valued at its IPO at $23 billion in 2003.

Further, Facebook could be valued at offering at 99 times earnings.

This is more than the price earnings ratio of 99% of companies in the S&P Index, yet even with some estimating sales of $6.1 billion this year, Facebook would only rank about 400 in the S&P 500.

True Facebook has amassed an incredible 900 million users, but the company's revenue growth has slowed for the 3rd year in a row.

Another article in BusinessWeek (10 May 2012) describes a new social networking contender called Diaspora.

Unlike Google+ which is predominantly a Facebook copycat, Diaspora is bringing something new and major to the table--they are addressing the privacy issues that Facebook has not.

Diaspora is a distributed (or federated) social network, unlike Facebook which is centralized--in other words, Diaspora allows you to host your own data wherever you want (even in the cloud).

Each of these independently owned Diaspora instances or "pods" (dispersed like in the Diaspora) make up a true social "network"--interconnected and interoperable computing devices.

With Diaspora, you own your own data and can maintain its privacy (share, delete, and do what you want with your information), unlike with Facebook where you essentially give up rights to your data and it can and is used by Facebook for commercial use--for them to make money off of your personal/private information.

When it comes to personal property, we have a strong sense of ownership in our society and are keen on protecting these ownership rights, but somehow with our personal information and privacy, when it comes to social networking, we have sold ourselves out for a mere user account.

As loss of personally identifiable information (PII), intellectual property, identity theft, and other serious computer crimes continues to grow and cost us our money, time, and even our very selves in some respects, alternatives to the Facebook model, like Diaspora, will become more and more appealing.

So with social networks like Facebook--it is a case of love it, but leave it!

Love social networking--especially when privacy is built in--and others don't have rights to what you post.

But leave it--when they are asking for your investment dollar (i.e. IPO) that could be better spent on a product with a business model that is actually sustainable over the long term.

(Source Photo: here with attribution to Allan Cleaver)


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