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Golden Age of Silicon Valley Is Over With Facebook IPO
Hugh Pickens writes "Steve Blank, a professor at Berkeley and Stanford and serial entrepreneur from Silicon Valley, says that the the Facebook IPO is the beginning of the end for Silicon Valley as we know it. "Silicon Valley historically would invest in science, and technology, and, you know, actual silicon," says Blank. "If you were a good venture capitalist you could make $100 million." But there's a new pattern emerging created by two big ideas that will lead to the demise of Silicon Valley as we know it. The first is putting computer devices, mobile and tablet especially, in the hands of billions of people and the second is that we are moving all the social needs that we used to do face-to-face onto the computer and this trend has just begun. "If you think Facebook is the end, ask MySpace. Art, entertainment, everything you can imagine in life is moving to computers. Companies like Facebook for the first time can get total markets approaching the entire population." That's great for Facebook but it means Silicon Valley is screwed as a place for investing in advanced science. "If I have a choice of investing in a blockbuster cancer drug that will pay me nothing for ten years, at best, whereas social media will go big in two years, what do you think I'm going to pick?" concludes Blank. "The headline for me here is that Facebook's success has the unintended consequence of leading to the demise of Silicon Valley as a place where investors take big risks on advanced science and tech that helps the world. The golden age of Silicon valley is over and we're dancing on its grave.""
The headline for me here is that Facebook's success has the unintended consequence of leading to the demise of Silicon Valley as a place where investors take big risks on advanced science and tech that helps the world. The golden age of Silicon valley is over and we're dancing on its grave
Eh, just because Facebook is also used by millions of ordinary people doesn't mean it's not computer technology company and, even more so, doesn't help the world. In fact I think that Facebook has done immersive amount of good for the world. What have you done, exactly? This is extremely obvious to anyone who is older than 15 years old and especially for those of us who live overseas and have friends, family and people all over the world and helps to keep in touch with people easily (and no, I'm not going to bother them all by emailing them on little things).
Morgan Stanley had to buy back all the stock to prevent it turning from Facebook into Faceplant. They'll have to sell it all over again.
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I read the summary and am completely baffled by the train of thought.
The conclusion doesn't follow from the premises (which themselves are unsupported conjecture).
What is this insane troll logic?
They are usually incorrect unless it's a living thing. The PC has been dead more times than I can count. So has the web. Move along, nothing to see here folks.
It will not only be important to estimate what "value" really is but how robust it is. If you make a technological leap which needs a lot of research investment and which is difficult to copy, then this is value which is robust. Real resources like oil or level of education are such robust values. FB has generated a lot of robust value in building up all the infrastructure and code. But the value of FB includes also networks of people which is also value but is fragile because it is based also on reputation and coolness. If you sit on a real goldmine, you do not have to be cool. You will make money. If you sit on a virtual goldmine like FB, you have to remain popular to please investors and make money. This makes me side more with Steve Blank in the economist opening statement. However, facebook now also has the power to grab and crush smaller competitors and harvaest their talent. The fact that they get the best in the industry might mean that they will start entering more robust markets like entertaining, news etc. This makes me believe also Ben Horowitz. We will have to wait and see.
For no effort? Excuse me, but venture capital is integral part of current day innovation and companies. Without that capital there would be tons of products and ideas that would never see the day. It's also one of the reasons why U.S. has climbed on top of tech industry.
Also, it's not like they can loan money to every new comer. It takes time and work to evaluate potential ideas. There are risks involved. Yet, venture capital is one of the actual things that greatly increases innovation. But don't let that get into the way of your rant.
Facebook must be offering something to the world or it wouldn't have hundreds of millions of active users. It isn't a cure for cancer but it isn't nothing either. The crux of the Blank's argument seems to be that venture capitalists like to invest in things that will make them money and that social media is now more likely (or perceived to be more likely at least) to turn a profit than advanced science. I'm tempted to say that if your cancer research doesn't appear to have any more potential than the next cockamamie up-and-coming social media company then maybe your cancer research doesn't deserve investors.
The conditions under which Facebook would be really worth $100 billion are that somebody with $100 billion in cash was prepared to offer that much for it, and it was accepted. The IPO is, in effect, designed to prevent us finding out the true market value of the company. All we know is that people who almost all already had shares were prepared to exchange them for Facebook shares. Those people might have thought that their shares were about to tank, or that they might make short term profits. We don't know.
The historical analogy, although the exact terms of the deal were very different, is the Time Warner/AOL merger. The merger valued the entire group at around $350 billion. It turned out that the analysts and the investors were comprehensively wrong.
Don't get me wrong; in the Wall Street casino, people may get rich dealing in Facebook shares. But, as set up at the moment, the actual value of the company cannot be inferred from the share price, and all the predictions of a change in world culture are as reliable as the same predictions that were made about the AOL merger.
From scarped cliff or quarried stone she cries "A thousand types are gone, I care for nothing, no not one."
From TFWU: "If I have a choice of investing in a blockbuster cancer drug that will pay me nothing for ten years, at best, whereas social media will go big in two years, what do you think I'm going to pick?"
How did the economy get so skewed that something that is a real product which can serve a social good is ignored for sheer speculation?
And don't give me: "Rapid communications makes the economy more efficient" The economy was OK, even better, before Facebook. The economy even was OK before the internet, it just took a little longer to get things done( which may not be a bad thing). Also, efficient for who? Efficiency depends on where you are standing and how you measure it, e.g. immediate expenditure vs long term expenditure and immediate gain versus long term gain.
Basically people are speculating on a toy.
putting the 'B' in LGBTQ+
I wish I could agree with, but I can't. You see, Facebook uses the single most readily available resource humanity has - mediocrity, an outlet of which it essentially is. The vast majority of people are simply statistics. Nobody knows or cares about them except maybe for their relatives and a handful of acquaintances. Every like they get, every stupid comment on a picture they post compensates for their lack of self esteem and fuels their exhibitionism. Facebook it's not something you grow out of, but rather something you grow old into, because the older you get, the better you realize you're not worth much.
Share price implausible. The tl;dr is that of $16 billion, nearly $12 billion had to be bought by the usual suspect banks: Morgan Stanley, JP Morgan and Goldman Sachs. Among all the hype, that is actually a huge failure.
From scarped cliff or quarried stone she cries "A thousand types are gone, I care for nothing, no not one."
If I have a choice of investing in a blockbuster cancer drug that will pay me nothing for ten years, at best, whereas social media will go big in two years, what do you think I'm going to pick?
Remember the spectacularly huge Netscape IPO in 1995. Then this quote would've been:
If I have a choice of investing in a blockbuster cancer drug that will pay me nothing for ten years, at best, whereas web browsers will go big in two years, what do you think I'm going to pick?
Observe spectacular failure of VCs who failed to think for themselves, and just followed the herd long after the peak had passed.
Same story, different year. The smart money is still investing in biotech, which actually has a real impact on our lives. Nothing to see here...move along...
I don't agree, I still think it will die a very timely death and rightly so, I even think Twitter is a better service, they don't sell peoples info down a river like Farcebook either. Can't wait for the bubble to best, like the MySpace bubble did and the geocities one before that!
Venture capitalists' ability to make billions of dollars for no effort is being threatened!!11
Yes, those greedy bastards - providing money to startups who otherwise might never get off the ground. I hate people like that!
P.S. The hip term is "vulture capitalists" - if you're going to be snarky, at least do it right.
This guy sounds like another tech hipster to me.
No one will invest in a company making a super cancer vaccine? One would only make $100M from it? The author clearly knows nothing about the biotech field. People *are* investing in biotechs right now. The idea that people won't invest in other areas because one company made money is simply not in line with real world behavior going on right now.
In terms of Facebook, we'll see how that whole thing pans out for the people who are making Mr Zuckerberg rich right now. I suspect that the Facebook IPO will fall into the category of "moving money from the unwise to the unscrupulous" (much like most of the earlier dotcom IPOs). The Facebook insiders are making money. The underwriters are making money. I don't think the people buying Facebook are going to make money.
It used to be that really high end machines were needed to do audio synthesis. I now have a mellotron on my iPhone and iPad. The iPad, for audio editing, is GEC.
It used to take a super high end computer and a fleet of striped SCSI drives to edit the simplest SD Video. Now, you can edit insanely high quality HD video on a fucking laptop. It is only a matter of time before I can edit video from a Red camera on an iPad. At that point, the iPad is GEC.
Fashioning devices on a 3D printer is presently the domain of a laptop. It's just a matter of time before it is on an iPad or an iPhone.
Again, the iPhone and iPad are GEC. The article talks about investments in things non-Web2.0, and it is largely correct. However, even the digital substrate of Web2.0 is under constraint of GEC. If you live 80 year from cradle to grave, that's about 29,220 days. If you were born with the ability to read from birth and read one book a day on a kindle or iPad and each book was about 5 megs on average - (picture books eat a lot of space compared to text) then you're only talking 146GB of storage. That's GEC...
If you listen to music 16 hours a day from cradle to grave, that's only 28 TB @ 256kbps compression. And if you listen to every song twice, that's 14 TB. And if you listen to every song 4 times, that's only 7 TB. And if you listen to every song 8 times, that's 3.5 TB. And if you listen to each song 16 times, that's only 1.75 TB - a 2 TB drive can be had for less than $100. That's GEC....
And video? Do the same math. If you watch a movie (or basically 2 hours of video) a day every day from cradle to grave, and it's 2GB per hour, that's 4GB per day, or about 117 TB. So, what will store a LIFETIME of entertainment? about 120 TB of storage. If the storage trends of the past 20 years hold, I would suggest that a 120 TB drive will be available for less than $250 (in 2012 dollars) in less than 10 years, possibly less than 5, and probably no more than 15 years.That's GEC in storage.
Soooo, what happens when we put all that together? The internet will cease to be a space for file trading thanks to the concerted actions of governments and IP capital. File trading will go to Sneakernet, and the sneakernet will consist of PirateBoxes in cafes and friends attaching their Thunderbolt drives at home, and moving stupendous amounts of data between machines and watching them on flat screen TV or on their audio kit which will run off the wireless video card in their iPhone or iPad. GEC. Basically, innovation at that point, as in BASIC innovation will cease. Content, as in something stored, simply evapourates onto a "life drive" of media files. Encumbered with patents and a ceiling of perception created by the human sensorium, GEC will reign until the industrial system turns the planet into a smoking dead husk. The biosphere collapses, cities flood, people starve, but damn - did you see American Idol last night? Fuck - that chick sings like an angel...
Shoes for Industry. Shoes for the Dead.
Impartial, disinterested, university funded R and D - which is what everything from music synths to Google started out as:
http://facts.stanford.edu/research.html
-is a natural force for good in developed countries and it's never going to be "over" unless that developed country is "over" .
The leveraging for "Yearbook On The Web !!! " -type opportunities to make money off people naive enough to surrender their most intimate details to a group of total strangers whose sole aim is to monetize same, well, that may be over.
If you compare FB with Google, the differences tell the real story. FB could be replaced in functionality by any number of me-too--products because its peculiar success is not borne of any kind of technological breakthrough but only the fact that it, and not some other equally ordinary-technology product, was the victor in a product space with network effects strong enough to create a natural "winner take all" market.
Meanwhile, Bing is still trying to be 1/10th as good as Google is at doing what it does, despite billions of dollars at the M$'s disposal and some of the best minds in the world working for them.
When the story of the internet is told, it will go like this- DARPA, FTP, email, the web, HTML, Mosaic then Google. Those are the big events. Those are the technological breakthroughs that that literally changed the world. FB will be a footnote.
So to the extent that FB's value is an exercise in bubble economics and phantom value, maybe this is the end of SV's love affair with this kind of thing. That proposition is dubitable since people with too much money generally earned it by doing wholly useless things like co-locating their servers closer to NYSE's servers to give them a multi-billion dollar edge when doing flash trading -
http://theweek.com/article/index/204396/wall-streets-secret-advantage-high-speed-trading
and having custom FPGA made for them in order to grind out nanosecond advantages over their competitors in high frequency trading -
http://www.impulseaccelerated.com/app_financial.htm
so it's unlikely these same people are going to have the fine antenna necessary to distinguish innovations which create revenue opportunities by delivering real, ongoing value from those that have "Hindenberg " painted in man-sized letters on the side: http://www.youtube.com/watch?v=F54rqDh2mWA
Long live the free market and real innovation delivering real value to the lives of real people . Here's to you.
It's not insane logic at all. If you're an investor and you have $xK to invest what would you invest in? Hard high-tech like cancer research (lots of work, time and money, higher risk, low chance of success) or social media (much less work/time/money and a higher chance of success). Zuckenberg didn't get rich curing cancer, he did it inventing a social media website. This is why investors and entrepreneurs flock to social media projects and ignore the hard stuff.
The issue for Facebook, however, is that none of the other protocols made anybody silly rich, and XMPP is a freely available and very easy to deploy server based system. I do wonder how many "investors" realise just how much of Facebook's technology is replicable at very low cost.
From scarped cliff or quarried stone she cries "A thousand types are gone, I care for nothing, no not one."
If the VCs you're talking to are all switching to social media now, you're probably talking to the wrong guys anyway. Sure, there might be a few who understand the risks and opportunities, but blindly following trends smells like ignorance, and ignorant investors are the worst you can get. If you have to follow the Silicon Valley model, concentrate on the folks who specialize on deals within your particular industry.
Also, VC doesn't appear to be the smartest choice here anyway. Apply for grants, talk to people who understand the problem your startup is going to solve, start a Kickstarter, go to banks (rarely works, but when it does, it does) and if that's not enough, try VC. I'm not saying VC is always a bad choice, but it's real usefulness is in rapid business development, not starting a brand new, R&D-intensive enterprise, which is kind of implied by will pay me nothing for ten years.
Facebook stock is going to tank.
They opened with a price/earnings ratio of 92. (Closed around 88, as the stock price dropped from 42 to 38). A normal P/E ratio for a successful large company is between 10 and 20. (Google is at 18, Microsoft at 10, IBM at 15, Apple 13, News Corp. 16).
What this means is that Facebook has to increase their revenue by a factor of 6. They can't increase their user base by that much; there aren't enough people on the planet.. Their Alexa traffic peaked in mid-2011, so they're no longer growing. Their revenue per ad is dropping. General Motors just dumped Facebook as an ad medium because it was ineffective. Facebook has lately been increasing the page space devoted to ads. Myspace tried that before they tanked.
We've probably seen the peak of ad-supported businesses. There's only so much ad spending in the world to compete for. That industry is not the future. It's the past. Like the "house prices can only go up" crowd.
It's important to look at key ratios, like P/E and median house price / median income. Those tend to stay in a narrow range over decades, and when they get too high, it's a bubble.
We warned you. You didn't listen. Now suffer. Downside
Steve Blank should stop lamenting and instead invest in Blueseed. Now THAT's hardware.