Facebook is about as exciting as email

Facebook is no upgrade from Web 1.0. It is Web 1.0. It is time to value it as such.

By TheStreet Staff Oct 23, 2012 12:41PM

TheStreet LoGoFacebook log-in page © Chris Ratcliffe/Bloomberg via Getty ImagesBy  Jonathan Blum

 

If investors are getting that

déjà vu feeling from Web 2.0 giant Facebook (FB), it's because the second-generation Web is turning out to be just like the first. 

Glance at any computer, tablet or smartphone with an "email" icon on it, and you'll see a perfectly apt model for the past, present and future business potential of Facebook.

 

Think about it. Technically speaking, the technologies behind Facebook and email are about the same. Each is deployed in roughly the same way. Instead of the decades of slowly emerging Internet Web standards, sharing protocols and server technology that enabled Mark Zuckerberg to share faces and friends on Facebook, email started as a private, text-based communication tool like, say, FidoNet and CECNet, then evolved into modern, commercial email systems in the early 1990s.

 

Similar to how Ivy Leaguers tried to look cool by using early versions of Facebook at the turn of millennium, tech hipsters back in the Age of Prince vied to be equally chic by sending email.

 

I had a great laugh several weeks back when I was chatting with Sree Sreenivasan, the chief digital officer at Columbia University. We remembered how we seriously considered spending $50 of our own money back in the day to junk our business cards and get new ones with an email address printed prominently on the front so we wouldn't look like dorks.

 

And, just as with Facebook, email quickly caught the attention of financiers slinging the next hot tech play to investors. Back in the late 1990s, the now-and-forever goddess of geeks, Mary Meeker, hyped the near-magical transformational business potential of email.

 

"E-mail is the 'killer application' of the Internet today," Meeker and Chris DePuy wrote in their famous Internet Report back in 1996. In fact, the two -- then at Morgan Stanley (MS) -- were so passionate about the wonders of electronic mail that these were the few portions in the report that were set in bold.

 

Like Facebook, email created a Hollywood hit: 1998's "You've Got Mail," starring a spry Tom Hanks and Meg Ryan. It earned a respectable $250 million worldwide, according to BoxOffice.com, which is more than the $224 million fetched by "The Social Network," David Fincher's brooding take on Facebook's launch.

 

Keep in mind that the market rollouts of Facebook and email are far too similar to be coincidental. Facebook and email both hit a billion users roughly a half-decade after commercial deployment. And Facebook is on track to follow email in terms of global penetration. The Radicati Group, the Palo Alto, Calif.-based research group that studies mass messaging, including email, estimates there will be 4.3 billion email users by the end of 2016.

 

"This represents an average annual growth rate of 6% over the next four years," said the company.

 

Fair enough. That's not exactly what Facebook is doing, but it's not far off.

 

Facebook doesn't make any money either 
The chilling part for investors, of course, is that email offers as grim a prediction as possible for the future of Facebook.

 

First off, email -- like Facebook -- still struggles to find customers who are willing to pay for it. The Radicati Group report confirms that the vast majority of email accounts (somewhere around 75%) are given away for nothing. And like Facebook, the money that spins out of email is not exactly the stuff of fatted calves.

 

This year Google (GOOG) boasted that its Gmail product reached 425 million users worldwide, with 5 million businesses using its professional Google Apps package. Sure, that sounds great. But Boston-based Trefis estimates that even though revenue will grow, it contributes barely 1% to the value of Google stock.

 

And let's not forget that email -- just like Facebook -- faces brutal security issues that drive up costs for customers. 


According to the Messaging Anti-Abuse Working Group, the San Francisco-based trade group that monitors spam and malware in email, the overall amount of so-called abusive email was holding steady at between 88% and 90% of total traffic. This costs everybody in this sector loads. Sterling Heights, Mich.-based CMS created a handy online calculator that estimates that a business with 10 employees loses about 20 days of work a year to email spam.

 

Web 1.0 after all 
Honestly, if you turn off the hype fog machine for a sec and compare any modern Web-based email service -- from Gmail to AOL (AOL) Mail to Yahoo (YHOO) or even Hotmail -- and enable all the latest functions for list management, rich media sharing and Web-based list and group management, really, how different is that experience from Facebook?

 

The answer is: not much.

 

Ignore the investor spam: Facebook is no upgrade from Web 1.0. It is Web 1.0. It is time to value it as such.

 

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage. 

More from TheStreet.com

2Comments
Oct 25, 2012 10:23AM
avatar
The analysis on FB is mostly a joke - I don't think this article is exactly what will happen but it is more realistic and honest than most.

FB gets more than 50% of its ad revenue from the US where subscribers are declining and less from the third world which is where its subs are increasing. 

The simple equation is - it's costs go up (providing service outside the US) while its revenue declines (shrinking subs in the US) so it will go down once wall street starts telling the truth.

Right now they are trying to protect the "belief" that IPOs and the market are good as FB was an embarrassment.

It's is worth something but nowhere near the current valuation. I would say less than $5 a share at this point .
Report
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
Categories
100 character limit
Are you sure you want to delete this comment?

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

ABOUT TECHBIZ

Start investing in technology companies with help from financial writers and experts who know the industry best. Learn what to look for in a technology company to make the right investment decisions.

RECENT POSTS

6 ways Google screwed up with Glass

Consumer backlash has garnered plenty of attention for the tech giant's admittedly exciting and innovative eyewear. But here's why it will be remembered as a botched product launch.

VIDEO ON MSN MONEY

RECENT QUOTES

WATCHLIST

Symbol
Last
Change
Shares
Quotes delayed at least 15 min

MSN MONEY'S