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Facebook is a NOP

In the last 10 years, Apple has created an amazing amount of wealth. The iPod, iPhone, and iPad are revenue generators like no other. Apple is the largest company on the NASDAQ, and unlike its technological forbears, its P/E is 15.

I don't "like" Apple. I can't. There are no like buttons, +1's, add this, or that, on apple.com. The Apple Store doesn't have any f or t logos to click on to let other people know about their products. Apple's Ping lets you tweet, but Facebook integration is missing. I'm pretty sure Apple isn't interested in giving Facebook any more free advertising than it already gets.

Free advertising. Facebook is advertised on billions of web pages, menus, marquees, etc., for free. How much all this advertising is worth is beyond calculation. Really, think about how much Pepsi or Coke would have to pay to get a logo and link to their site from every web page. We do know that Facebook has almost one billion users, which is extremely impressive. Hats off to Facebook for figuring out the world's cheapest and best user acquisition model.

Sticky eyeballs, not user -- I forgot I had to objectify the already objectified term "user" into just the important body parts. In the software business, users are people. In advertising, they are dollar signs. Facebook is an ad-based business, for the most part. It is also the largest site on the Internet in terms of page views.

So what? With a certain amount of luck and fortitude, a clever entrepreneur can turn mountains of cash into eyeballs and clicks. The trick, of course, is turning those investments into profits. Currently, Facebook is a NOP for revenues.

Apple increased revenues by 60% last quarter and generated $11.6B in profits. As an interesting yardstick, Apple's profits are more than Google's revenue in Q1 2012, and Google's revenue grew by 59% that quarter. Google is by far the most successful pure Internet play out there, but it gets fewer page views than Facebook. Even today, MySpace generates about a billion page views per day. Yet, MySpace just sold for $35M so all those page views do not make much money.

Apple makes and sells things, which have production, shipping, support, and repair costs. All companies have marketing costs, except of course, Facebook. Well, not really. Facebook doesn't pay for customer acquisition costs, but it does pay to reach marketers. It spent $677M last quarter in order to earn $1B in revenue. Ouch!

But wait, there's more. Facebook already has 2B sticky eyeballs of the world's 7B people. Of the rest, not many need a Facebook Fix to get through their day. 80% of the world lives on less than $10 a day, and while Facebook may improve their lives a bit, it won't see much revenue from the poor of the world. And, it's already the largest site on the Internet. Facebook growth in these dimensions is a NOP.

Ah, social media marketing. That's the biggest NOP of all. For the last couple of years, every company has added social media to their website. There are QR Codes [Wikipedia] on ketchup bottles so that I can "click" on them to get to my favorite ketchup company's Facebook page and say brilliant things like:

Pamela Jane Protheroe Wish I could get rid of this Heinz ad popping up all over my fb page!
Heinz Ketchup Hi Pamela, You can hide our posts by clicking the top right corner of the Heinz post in your newsfeed. Hope this helps!

Woops! I mean something like this:

Heinz Ketchup lovers chatting...

How does this help Heinz's revenue? I'm sure it doesn't. Since it probably doesn't cost Heinz much to answer questions on its Facebook page, why not keep doing it? Because it's a NOP. You could pay that person to drive around a funky car with a giant ketchup bottle sticking out the back, and hand out ketchup to teens. Seems to work for Red Bull. Seriously, paying somebody to answer inane questions on Facebook does not generate revenue so just say no!

How do I know social media is worthless? Because Apple has a real effect on the economy, and Facebook doesn't. The S&P has grown 10% this year due to Apple stock alone. I predict Apple's revenues will be more than 1% of the US GDP in 2012. Facebook's revenues in 2012, of course, will be a NOP with respect to GDP.

The really sad bit is that companies are spending on average 7% of their marketing budgets on social media. That's 7% dumped down the drain, when it could be put to more productive uses. How can I be so sure? When every company is doing the same thing, there will be a causal macro-economic effect. For example, during the Great Recession -- is it over yet? -- companies laid off workers and productivity increased. By that same logic, if social media is at all effective, GDP should be going up. Yet, GDP is an anemic 2.3% this year.

Before you say that's ridiculous, consider another prediction: Apple's revenue growth in 2012 will be $70B (or more). The US economy is $15T which multiplied by 2.3% equals $350B. Yup, Apple will be responsible for 20% of the growth of the US economy as a whole. That's simply amazing, and all without the help of tweets, likes, and +1's. And, Facebook and social media marketers' net economic effect will be, like, a NOP.

Via Rob 4/28/2012

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Addendum:

It's been over four years since I wrote the above article, and at least five years since I had noticed these relationships. Despite all the promises, Facebook's revenue ($20B) is still less than Google's profit ($26B). Google's revenue ($78B) is less than Apple's profit ($79B). One would think that if these relationships would be reflected by the market capitalizations of these stocks. However, FB's market cap is $338B, GOOG is $490B, and AAPL is $533B. That doesn't make sense, especially when you add in two facts: AAPL is the only stock of the three that pays dividends (2%) and that is buying back its stock at a ferocious rate ($250B by 2018).

Moreover, if Facebook was such a powerful economic driver, the US economy would be growing at a much faster pace than 1-2%, no different than four years ago.

Via Rob 7/11/2016