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Faceplant with Facebook?

With the Facebook IPO coming up this Friday there is a lot of attention around its business model and financials. I’m not an expert in this area, but my hunch is that a lot of people will lose a lot of money by chasing after Facebook shares. Why?

I think there are two types of answers. One from reasoning and one from intuition.

For reasoning one needs to look at a more technical assessment of the business model and financials. Some have written extensively about the comparative lack of innovation in Facebook’s business model and core product. Some have compared Facebook’s performance in advertising to Google – the estimates are that Google’s ad performance is 100x better than that of Facebook. Some have pointed out that many of Facebook’s core metrics such as visits/person, pages/visit or Click-Through-Rates have been declining for two years and go as far as calling this the Facebook ad scam. One can question the wisdom of the Instagram acquisition, buying a company with 12 employees and zero revenues for $1B. One can question the notion that the 28 year old founder will have 57% of the voting rights of the public company. One could look at stories about companies discontinuing their ad Facebook efforts such as the Forbes article about GM pulling a $10m account because they found it ineffective. The list goes on.

Here is a more positive leaning infographic from an article looking at “Facebook: Business Model, Hardware Patents and IPO“:

Analysis Infographic of pre-IPO Facebook (source: Gina Smith, anewdomain.net)

To value a startup at 100x last year’s income seems just extremely high – but then Amazon’s valuation is in similarly lofty territory. As for reasoning and predicting the financial success of Facebook’s IPO, people can cite numbers to justify their beliefs both ways. At the end of the day, it’s unpredictable and nobody can know for sure.

The other answer to why I am not buying into the hype is more intuitive and comes from my personal experience. Here is a little thought experiment as to how valuable a company is for your personal life: Imagine for a moment if the company with all its products and services would disappear overnight. How much of an impact would it have for you as an individual? If I think about companies like Apple, Google, Microsoft, or Amazon the impact for me would be huge. I use their products and services every day. Think about it:

No Apple = no iPhone, no iPad, no iTunes music on the iPod or via AppleTV on our home stereo. That would be a dramatic setback.

No Google = no Google search, no GMail, no YouTube, no Google maps, no Google Earth. Again, very significant impact for me personally. Not to mention the exciting research at Google in very different areas such as self-driving vehicles.

No Facebook = no problem (at least for me). I deactivated my own Facebook account months ago simply because it cost me a lot of time and I got very little value out of it. In fact, I got annoyed with compulsively looking at updates from mere acquaintances about mundane details of their lives. Why would I care? I finally got around to actually deleting my account, although Facebook makes that somewhat cumbersome (which probably inflates the account numbers somewhat).

I’m not saying Facebook isn’t valuable to some people. Having nearly 1B user accounts is very impressive. Hosting by far the largest photo collection on the planet is extraordinary. Facebook exploded because it satisfied our basic need of sharing, just like Google did with search, Amazon did with shopping or eBay did with selling. But the entry barrier to sharing is small (see LinkedIn, Twitter or Pinterest) and Facebook doesn’t seem to be particularly well positioned for mobile.

I strongly suspect that Facebook’s valuation is both initially inflated – the $50 per account estimate of early social networks doesn’t scale up with the demographics of the massive user base – as well as lately hyped up by greedy investors who sense an opportunity to make a quick buck. My hunch is that FB will trade below its IPO price within the first year, possibly well below. But then again, I have been surprised before…

I’m not buying the hype. What am I missing? Let me know what you think!

UPDATE 8/16/2012: Well, here we are after one quarter, and Facebook’s stock valuation hasn’t done so well. Look at the first 3 month chart of FB:

First 3 month of Facebook stock price (Screenshot of StockTouch on iPad)

What started as a $100b market valuation is now at $43b. One has to hand it to Mark Zuckerberg, he really extracted maximum value out of those shares. It turns out sitting on the sidelines was the right move for investors in this case.

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Posted by on May 16, 2012 in Financial, Socioeconomic

 

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Mobile Business Intelligence Market Study

Mobile Business Intelligence Market Study

Dresner Advisory Services publishes an annual study on Mobile Business Intelligence vendors, the latest in October 2011. It focuses on the mobile capabilities of BI platform vendors similar to those in the Gartner Magic Quadrant for Business Intelligence we recently looked at.

The ~50 page document has a good executive summary and provides insight from industry surveys and changes between 2010 and 2011. In terms of data visualizations, it generally does a poor job of conveying the study findings. There is an abundance of pie charts and stacked bar charts with often very confusing color codes. For example, consider this chart on BI vendor mobile platform priority:

Mobile BI Vendor Platform Priority (source: DAS)

Rank information shouldn’t be conveyed by color (better by vertical position). It is very confusing to see which platforms gained or lost in the ranking. A data visualization should first and foremost make it easy to spot patterns and thus provide insight. Not every dataset makes for a good Excel bar chart.

All that said, I found one very useful chart which shows all vendor Mobile BI capabilities at a glance:

Mobile BI Vendor Scores (source: DAS)

Regarding the vendor scoring, from the study:

Using the data that was provided by twenty-four different BI vendors, we constructed a model which scores them based on mobile platform support, platform integration and numbers of supported BI features (Figure 33).

Please carefully review the detailed vendor and product profiles on pages 47 – 52 and to consider both dimensions (i.e., platform and features) independent of each other.

It should be noted that this model reflects only two dimensions of a BI vendor’s product capability and is not intended to indicate “market leadership” only a convergence of capabilities for Mobile BI. Readers are encouraged to use other tools to understand the many other dimensions of vendor capability, such as our own Wisdom of Crowds Business Intelligence Market Study ®.

The full report can be downloaded from the Yellowfin website here.

 
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Posted by on February 29, 2012 in Industrial

 

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TreeMap of the Market

TreeMap of the Market

SmartMoney has an interactive visual tool on their website called “Map of the Market”. It is an application of the TreeMap concept developed by Ben Shneiderman which I have blogged about before here.

The map lets you watch more than 500 stocks at once, with data updated every 15 minutes. Each colored rectangle in the map represents an individual company. The rectangle’s size reflects the company’s market cap and the color shows price performance. (Green means the stock price is up; red means it’s down. Dark colors are neutral). Move the mouse over a company rectangle and a little panel will pop up with more information.

Map Of The Market (Source: SmartMoney website)

For example, the above map shows the 26 week performance with the Top 5 Losers highlighted (hovered over RIMM). More information from the corresponding Map Instructions page.

This map is also quite similar in concept to the StockTouch iPad app which I covered here. StockTouch displays 900 companies, grouped into 9 sectors. The above Map of the Market is a free service, with an available upgrade to one showing 1000 companies for a subscription fee. While interesting in its own right, however, this is not about the business model of how to monetize the use of such information.

It might be interesting to put together a time-lapse video showing this map for every close of business day throughout one year. Not only would one see the up and down movement by color, but also the gradual shifts in the cumulative size of various sectors due to the area in the tree map.

Another fascinating set of tree map uses is on display at the Gallery of the Hive Group website. Their interactive tree map product HoneyComb has been used in many different industries. The Gallery shows many examples, ranging from sales performance to manufacturing / quality applications to public interest uses such as browsing Olympic Games results or data on Earthquakes. See the following example screenshot (click to interact on the Hive Group website):

TreeMap of Earthquakes (Source: HiveGroup)

While you won’t get the full benefit of seeing the details of all 540 items in one view, you can filter using the panel controls on the right or change the grouping and size and color attributes. This shows for example that the most powerful earthquakes are generally not the most deadly ones and vice versa.

Interacting with these sample tree maps again drives home the fundamental notion that interactive visualizations lead to quicker grasp and better understanding of data sets. This is similar to how walking around and seeing an object from different perspectives gives you a better idea of it’s 3-D structure than seeing it just in one 2-D picture. With multiple ways of interacting it feels almost as if you’re walking inside the data set to see it from multiple angles and perspectives. You have to do it yourself to appreciate the difference it makes.

Lastly, a good article on some of the pitfalls of tree map design with lots of links to good/bad examples comes from the folks at Juice Analytics in their Blog post titled “10 lessons in Treemap Design“.

 
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Posted by on October 29, 2011 in Financial, Industrial

 

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Share and Inequality of Mobile Phone Revenues and Volumes

Share and Inequality of Mobile Phone Revenues and Volumes

The analyst website Asymco.com visualizes various financial indicators of mobile phone companies in this interactive vendor bubble chart (follow link, select “Vendor Charts”). It covers the following 8 companies: Apple, HTC, LG, Motorola, Nokia, RIM, Samsung, Sony Ericsson. From the “vendor data” tab I downloaded the data and looked at the revenue and volume distributions for the last 4 years.

Revenue Share of Mobile Phones and corresponding Gini Index

Note the sharp reduction in inequality of revenue distribution in the 9/1/08 quarter, when Apple achieved nearly 10x in revenue (and volume) compared to the year before. While the iPhone 1 was introduced a year earlier in 2007, in commercial terms the iPhone 3G started to have strong market impact when introduced in the second half of 2008.

Volume Share of Mobile Phones and Gini Index

Volume inequality is considerably higher (average Gini = 0.61) than Revenue inequality (0.43) due to two dominant shippers (Nokia and Samsung), which continue to lead the peer group in volume. Only recently has the inequality been reduced, i.e. the volumes are distributed more evenly. Apple’s growth in volume share has come at the expense of other players (mainly Motorola and Sony Ericsson).

Volume share is a lagging indicator regarding a company’s innovation and success. It can be dominated for a long time by players who are past their prime and in financial distress (like Nokia). Revenue is more useful to predict a company’s future growth and success. But the real story is told when comparing Profit. Apple’s (Smart Phone) Profit dwarfs that of the other 7 competitors:

Profit Comparison between 8 Mobile Phone Vendors (Source: Asymco.com)

Click on the image to go to Asymco’s interactive chart (requires Flash). The bubble chart display over time is very revealing regarding Apple’s meteoric rise.

 
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Posted by on October 22, 2011 in Financial, Industrial

 

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Market Capitalization Inequality in the Steve Jobs era

The excellent analyst website asymco.com recently published a post titled Visualizing the Steve Jobs era. In it they display an area chart of the relative size of market capitalization of about 15 companies they have tracked for the last 15 years.

Since I had looked at the Gini index of a similar set of companies in an earlier post on Visualizing Inequality I contacted the author Dirk Schmidt. Thankfully he shared the underlying data. From that I calculated the Gini index for every quarter and overlaid a line chart with their area chart.

Share of Market Capitalization Area Chart overlaid with Gini Index

Dirk elaborated in his post and identified three distinct periods in his post:

  • Restructuring of Apple 1997-2000 – Gini remains very high near 0.85 due to MSFT dominance
  • iTunes era 2001-2006 – Gini decreases to ~ 0.55 due to AAPL increase and taking share from other established players
  • Mobile devices era 2007-2011 – Gini increases again to 0.65 due to increasing dominance of AAPL and irrelevance of smaller players

Regardless of the absolute value of the Gini index – note the caveat from the earlier post that it is very sensitive to the number of contributors – the trend in the Gini can be an interesting signal. One company dwarfing every other like a monopoly corresponds to high Gini (here 0.85 due to MSFT dominance). A return to lower Gini values (here down to ~0.5) signals stronger competition with multiple entrants. The recent reversal of the Gini trend (up to 0.65 due to AAPL dominance) is a sign that investors see less choices when it comes to buying shares in those tech companies. Whether that’s a leading indicator for consumers seeing less choices in the marketplace is another question…

 
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Posted by on September 29, 2011 in Financial, Industrial

 

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Branded Data Visualizations: LUMAscapes

In this article on the Spotfire Blog Amanda Brandon recently posed the question: Can Data Visualizations Change the Business Decision Game? The article recounts the creation of data visualizations by Terrence Kawaja to show the complex online advertising space with over 1200 companies involved in a $10b annual business. The graphics show the flow of information and involved service providers from advertiser to consumer. It is said that the original chart published in 2009 became a “go-to tool for advertising executives”.

Advertising Technology Landscape by Terrence Kawaja (2009)

Kawaja of investment firm LUMA Partners refined this approach and created six such landscapes called LUMAscapes for display, video, search, mobile, commerce, and social online advertising.

Search online advertising technology landscape (Source: Lumascapes from lumapartners.com)

The Spotfire Blog conlcudes with four takeaways for business analysts from the approach to use such visualizations:

Data visualizations are the ultimate content marketing. The simplification of complex data in a visually appealing format can take your information and brand viral. Giving away data on the major players and how they work together to drive an industry set the stage for authority and respect. …

Data visualizations can become an industry standard. Simply look at how Kawaja was able to help ad executives navigate the digital ad space.

Data visualizations can become a game-changer. Kawaja is branding these tools and using the graphics as a tool in generating business for his investment firm.

Data visualizations can be central to business decision-making. According to the WSJ, these new visualizations could enhance discussions at the Digital Media Summit, a meeting of top execs from the investment and Internet advertising space.

A picture can be worth more than a thousand words…

 
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Posted by on June 23, 2011 in Financial, Industrial

 

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