FB - Facebook

[frommi]

Given all the uncertainty in technology, what do you guys think are the odds that facebook/instagram will still be used like today 20 years from now? And whats the difference to something like myspace.com in 2006-2008?

[Spekulatius]

Given all the uncertainty in technology, what do you guys think are the odds that facebook/instagram will still be used like today 20 years from now? And whats the difference to something like myspace.com in 2006-2008?

 

I think the risk that FB is replaced by a bigger mousetrap is higher than with GOOG to name one example. I do think that a lot of people underestimate the IP and know how within FB and how easy it would be to replicate. I think this is another part of the moat, beyond just the net work effects. Just like with GOOG, I think their real edge is Adsense and monetization rather than be the best search engine, I think FB is best in class how they grow social networks and monetize them. FB may be getting in the mature phase in the US, but it is still growing in terms of monetization elsewhere like weed, and then there is Instagram and Whatsup, which barely scratch the surface in terms of monetization or have not started at all.

 

I also feel that Zuckerberg is a very strong CEO with a long term view on the business and will be regarded on par with Bill Gates and Bezos down the road. Yes, he does poorly in the media right now with the scandal, but I think he will learn to do this better or hire someone who does, because FB right now is  more important for the public than TV networks have been in their hey days.

[Jerry Capital]

Reading through some material from Sequoia I picked up on a good heuristic. Evidence of failed competition, in many of Sequoias investments it seems to be one of the first things they mention, and an empirical way to test a moat.

 

I believe it's Buffet who says "if you gave me 100 billion dollars could I recreate this company." In my opinion we have seen clear evidence this is not the case with Google + (failed) and Google has the ultimate financial resources to compete.

 

There are also of course many other examples of less capitalized competitors getting crushed, Snap and Twitter. If Facebook didn't have a very strong moat (as well as a team of engineers who execute flawlessly) then Snap would be what Instagram is today. Instagram crushing Snap is similar to Facebook crushing Google + a few years back.

 

Does Google have a wider moat? I believe that's obvious buy owning the most popular OS worldwide (Android), does Facebook have more room for revenue, earnings, and subsequently cash flow growth? Absolutely.

 

I have bought shares in Google every year for 13 years (yes I'm boasting, but it helps prove my point re Facebook shares), but at these prices for Facebook my traditional yearly allocation to the perennial undervalued Google shares will be shifted to Facebook. In a similar vane to owning both Visa and Mastercard and counting them as "one position" I will now be doing the same with my allocation to Google and Facebook. This year Facebook represents a much better risk reward (albeit higher risk with a potentially higher reward).

[LongTermView]

And whats the difference to something like myspace.com in 2006-2008?

 

FB has made serious mistakes and they've gotten a lot of press on their shortcomings recently but MySpace was a trainwreck.

 

Some of the MySpace issues were mentioned by rishig here a year ago: http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/fb-facebook/msg292904/?topicseen#msg292904

It's important to understand why MySpace fizzled out as a social network. When one builds a platform, it is very important to enforce rules that discourage or even ban users from bad behavior. MySpace completely lacked this - they focused on vanity metrics like user growth at any cost. And they ignored the bad behaviors (trolling, porn etc). The ads that became prevalent also started going downstream.

 

Unlike MySpace, Facebook was always focused on engagement, which is driven by things you mentioned - user experience, features, method of communicating, reputation, fads etc. More on this topic here if you are open to evidence that may be disconfirming to what you think: http://a16z.com/2016/07/16/network-effects-event/

[reader]

Jerry Capital,

Kudos on your GOOG success. me too started a position in FB yesterday.

however, as I see it the biggest threats to both moat are obviously  regulatory(break GOOG, FB )

and on the competitive side something completely new, game-changing, as they were when Larry and Sergei, and Zuck

came out of academia and swept the market.something that could justify venturing out of their ecosystem.

just from my personal experience( and friends), Google's search is not the wonder it used to be. I think they are over monetizing it and under-investing in keeping up with the expansion of the web. good luck finding stuff posted in blogs.

 

[JRM]

Most people seem to be missing the big picture here.  Facebook is not just some tool to connect people and share information at the user level. It is a completely unregulated, unrestricted, addictive, and habit forming echo chamber.  The reason Facebook is trying to focus on engagement is because they are trying to re-inforce the behavior that makes their platform addictive, in the most literal sense.  People get a dopamine hit every time somebody "likes" or comments positively on something they post.  if a person is feeling down or depressed they may post something in order to elicit a response to feel better.  For example, someone who is recently single may post risqué photos to attract "likes" in an attempt to boost their self-esteem.  I see this behavior all the time.

 

Facebook and other social media are habit forming and people allow their kids unlimited access to it.  Targeted advertising and social engineering is just the tip of the iceberg.  Just wait until the democrats get ahold of Facebook (and Google) in the next mid-term elections. 

 

In my opinion, people are greatly underestimating the regulatory risk here.  Do regulations possibly make FB moat stronger?  I would say yes, but how much could potential regulations impact profitability?

[LounginMKL]

Wow, came here this morning and got a strong dose of confirmation bias for myself.

 

In my opinion, people are greatly underestimating the regulatory risk here.  Do regulations possibly make FB moat stronger?  I would say yes, but how much could potential regulations impact profitability?

 

The consensus at this moment is that regulation is going to limit data mobility, making incumbent (GOOG/FB) stronger. As a result, future digital ad dollars will continue to flow to these two ecosystems. If anyone has a bearish variant on regulation, I'd love to hear them. I think the chance for FB to get regulated like an utility is small (not essential our livelihood). How else can regulation torpedo the current business model?

[JRM]

I don't really care about regulations in terms of advertisement placement or data scraping.  I think most people don't care, for the most part.  Could be wrong.  I'm interested to see if society starts to view social media platforms as a detrimental, behavior altering, and an addictive medium; similar to drugs or alcohol.  I know it sounds excessive, but the current trend for young people is to escape cyberspace and interact in person and have real world experiences.  Sounds crazy, I know.

 

Facebook is the perfect combination of addictive and highly profitable.  Twitter, Instagram, and SnapChat don't have the latter (at least not yet).  I think FB is a near perfect company from an investment perspective.  I'm trying to think through the downside, so please don't take my angle as completely negative.

 

Microsoft had a lost decade in the 2000's after anti-trust trials and the tech bubble.  I'm trying to figure out if history is going to repeat itself, or if I'm falling victim to recency bias.

[LounginMKL]

There are many things in society that are addictive and potentially detrimental- corn syrup, sugar, soda, junk food, cigarettes, online gaming, coffee, porn, 24hrs news cycle- and society doesn't reject them. I'm not that worried about user exodus. After checking up on my friends, I noticed only 1-2% have deactivated their accounts.

 

I'm also trying to flesh out any downside regulation risks- what's the worst likely scenario?

 

On another hand, I can't help but to think about FB in relation to Munger's "Turning $2M into $2T" speech. In turning Coca-Cola into what it is today, it must have faced similiar questions- am I going to be regulated by distributing this addictive drink to the mass? once people recognize the negative health effects, are they going to stop drink coke? Perhaps I've digressed and took some liberty in connecting the two cases.

[walt373]

What about antitrust? FB and GOOG seem to be the rare cases where their competitive positions are so strong that getting stronger might become a negative. However, I'd expect Amazon to be targeted first. We know how Trump feels about Bezos, and Amazon is still in the process of destroying its competition. FB and Google aren't killing many competitors because they've already won. One argument against antitrust is that these modern monopolies are mostly benefiting consumers instead of exploiting them, which is what antitrust laws were created to protect against. Of course, FB has lost a lot of goodwill in this regard recently.

[JRM]

Anti-trust laws are in place to prevent companies from squashing competition; which Amazon, Google, and Facebook are all doing in similar ways Microsoft did in the 1990's.  Eventually the monopoly could turn against the consumer, but at this stage of the game the consumer loves the products these company provide.  The consumer is insouciant to the fact the any legitimate competition is squelched without a second thought.  Of course customers love Amazon.  They provide the ultimate customer experience.  But at what cost to society?

[rishig]

Sequoia fund buys FB in Q1:

https://www.sequoiafund.com/Download.aspx?ID=e13ac0a9-f76b-4a45-a2a7-2e760f7f025e&Name=Q1_2018_-_Investor_Letter

[Liberty]

Sequoia fund buys FB in Q1:

https://www.sequoiafund.com/Download.aspx?ID=e13ac0a9-f76b-4a45-a2a7-2e760f7f025e&Name=Q1_2018_-_Investor_Letter

 

Bill Nygren added it too:

 

https://www.oakmark.com/Commentary/Oakmark/Oakmark-Fund-Commentary-First-Quarter-2018.htm

[dutchman]

Liberty, do you own it?

[vinod1]

Anti Trust would be difficult to apply to Facebook and Google as the services these companies offer are free to consumers.

 

As far as harm to consumers is concerned (more along the lines of addiction) it is an par with Coca Cola. I do not think the vast majority of the people are too concerned about it. Ironically, the Trump episode proves this point. Lots of people (as measured in percentage of the population) are pissed off that Trump might have benefited from this and not because of concerns about privacy.

 

As far as another network replacing FB is concerned, I think FB has reached the point where this is very unlikely. Lots of good points by rishig on why FB is unlikely to go the way of myspace. In addition, on myspace, people only had the relationship information and not much else. So once some people started trying out FB, they moved as well. FB has added a lot of other services and people now have a lot of data as well on FB. So not only their friend network has to move all the content has to move as well. This makes it more sticky.

 

One way FB could be attacked is if people actually get paid by the social network for being a consumer. There are interesting things going on in Blockchain which makes this possible. See the article below

 

https://www.nytimes.com/2018/01/16/magazine/beyond-the-bitcoin-bubble.html

 

This has the added benefit that the data about consumers owned by consumer. But it is doubtful if this ever going to take off.

 

Vinod

 

 

[rb]

As far as another network replacing FB is concerned, I think FB has reached the point where this is very unlikely. Lots of good points by rishig on why FB is unlikely to go the way of myspace. In addition, on myspace, people only had the relationship information and not much else. So once some people started trying out FB, they moved as well. FB has added a lot of other services and people now have a lot of data as well on FB. So not only their friend network has to move all the content has to move as well. This makes it more sticky.

 

One way FB could be attacked is if people actually get paid by the social network for being a consumer. There are interesting things going on in Blockchain which makes this possible. See the article below

The thing with tech is that you just don't know. What you've wrote above could have easily been said about Yahoo circa 1999.

[vinod1]

What about tax law change in USA and the proposed one in Europe? If these laws are enacted, likely they will be impacted in other countries as well?

 

Anti Trust would be difficult to apply to Facebook and Google as the services these companies offer are free to consumers.

 

As far as harm to consumers is concerned (more along the lines of addiction) it is an par with Coca Cola. I do not think the vast majority of the people are too concerned about it. Ironically, the Trump episode proves this point. Lots of people (as measured in percentage of the population) are pissed off that Trump might have benefited from this and not because of concerns about privacy.

 

As far as another network replacing FB is concerned, I think FB has reached the point where this is very unlikely. Lots of good points by rishig on why FB is unlikely to go the way of myspace. In addition, on myspace, people only had the relationship information and not much else. So once some people started trying out FB, they moved as well. FB has added a lot of other services and people now have a lot of data as well on FB. So not only their friend network has to move all the content has to move as well. This makes it more sticky.

 

One way FB could be attacked is if people actually get paid by the social network for being a consumer. There are interesting things going on in Blockchain which makes this possible. See the article below

 

https://www.nytimes.com/2018/01/16/magazine/beyond-the-bitcoin-bubble.html

 

This has the added benefit that the data about consumers owned by consumer. But it is doubtful if this ever going to take off.

 

Vinod

 

It is not a big change, especially with the lower tax rate in US due to recent changes.

 

Vinod

[vinod1]

As far as another network replacing FB is concerned, I think FB has reached the point where this is very unlikely. Lots of good points by rishig on why FB is unlikely to go the way of myspace. In addition, on myspace, people only had the relationship information and not much else. So once some people started trying out FB, they moved as well. FB has added a lot of other services and people now have a lot of data as well on FB. So not only their friend network has to move all the content has to move as well. This makes it more sticky.

 

One way FB could be attacked is if people actually get paid by the social network for being a consumer. There are interesting things going on in Blockchain which makes this possible. See the article below

The thing with tech is that you just don't know. What you've wrote above could have easily been said about Yahoo circa 1999.

 

For years I had exactly the same thought as you. I kept thinking why is this different than Dell, AOL or Yahoo?

 

It took me quite a bit of study to change my mind. To displace FB it needs some form of Government intervention or users need to be sufficiently concerned about their privacy to stop sharing their information with FB.

 

It is more possible that user engagement could decrease by something new - for example what if FB is not able to buy Instagram or WhatsApp? But given its user base, it is in a good position to copy like Microsoft did way back in 1990s and crush competition.

 

I know I would probably sound like someone chasing the hot tech fad to you, just like I would have thought a little while back if someone else is talking about FB. :) There might be a comment like that somewhere on this board by me.

 

Vinod

[vinod1]

One way FB could be attacked is if people actually get paid by the social network for being a consumer. There are interesting things going on in Blockchain which makes this possible. See the article below

 

https://www.nytimes.com/2018/01/16/magazine/beyond-the-bitcoin-bubble.html

 

This has the added benefit that the data about consumers owned by consumer. But it is doubtful if this ever going to take off.

 

Vinod

 

WSJ just posted an article related to this:

https://www.wsj.com/articles/a-better-way-to-make-facebook-pay-1523209483

 

Techies have an expression for Facebook’s model. It’s “free as in beer”—in the sense of costing no money. You pay in other ways. I propose a simple fix. Let’s flip the whole thing—make it about property rights, 21st-century style. America was built on property rights. Congress can deliberate for 90 seconds and then pass the Make the Internet Great Again Act. The bill would contain five words: “Users own their private data.” Finis.

 

....

 

What would the world look like under the Make the Internet Great Again Act? If you upload to Facebook photos from your last beach vacation—though please don’t—you still own them. But if I go to your page, zoom in to see whom you’re drinking with, click on a nearby ad, message you about it, or even “Like” it, that information about me should remain private too. I should still own it. Same for whatever I search on Google or buy on Amazon. I control it.

 

Facebook would store this info in a virtual locker, and users would control access. The social network already has this data. It simply needs to corral it into two billion virtual lockers. It’d take an overnight hackathon to implement, really. Each user could then share or not.

 

But if you don’t share, Facebook can’t do its magic and provide a robust News Feed. It will be all cat videos, all the time. Similarly, Google can’t provide pertinent search results, which, like prizes on “The Newlywed Game,” are selected especially for you.

 

You’re going to want to share. Here’s the good news: Facebook is going to pay you to share. Then they’ll turn around and charge you a similar amount to cover the cost of servers, electricity, coders and Mark Zuckerberg’s hoodies. This way they can still show Wall Street the profits it expects. Worth it? Your call.

 

...

 

This is where it gets fun. Facebook would provide a sliding scale for sharing. The more information you deem shareable, the more you earn. In effect, it becomes a revenue-sharing arrangement with advertisers that want to reach you. If you don’t mind the barrage of ads, share away and a virtual wallet inside your virtual locker grows and grows, probably to be spent on new Facebook services like games, music or videos. Real competition in a real marketplace, rather than the charade of today.

 

I do not think this is easy to implement. Each of the board members would end up owning their comments on the CoBF board, as they would with all consumer reporting firms, etc. Might be easy for the big tech but not for others.

 

Vinod

[Liberty]

It's easy to dream things up, but implementation/execution is where 99.9% of ideas fail. People don't realize what is required for something like Facebook to even exist at the scale it currently operates.

[rishig]

One type of regulation that could made a dent in FB's business is the following:

 

Change the default setting for all users to be reduced functionality with minimal use of personal data.

 

So an example, may be, that FB can only use your age, sex, and city for doing targeted advertising by default. Obviously, with such high level targeting, your attention is of very little value to FB's advertising business. In exchange, FB may only offer you reduced functionality by default.

 

Say, you can use your FB, only 10 mins a day by default. For additional functionality, you have to explicitly opt-in to allow FB to use additional data for more personalized targeting. However, regulation again get FB here by requiring FB to show you all the opt-in choices with easy to understand checkboxes. When users go through these explicit choices, system 2 kicks-in and, may be, a lot of users may decide that 10 mins a day may be good enough for them, given how much data FB really needs from you.

 

Another way to think about this is that a lot of the addictive usage and engagement comes from FB's ability to appeal to our system one thinking. Any regulation that forces FB to let users pause and think may cause a real damage to engagement over the long-term.

 

Two questions: (1) how motivated are regulators globally to enforce such harsh measures?  (2) if they are motivated to do something like this, are the possible outcomes drastic to the business? 

 

Thoughts?

[vinod1]

One type of regulation that could made a dent in FB's business is the following:

 

Change the default setting for all users to be reduced functionality with minimal use of personal data.

 

So an example, may be, that FB can only use your age, sex, and city for doing targeted advertising by default. Obviously, with such high level targeting, your attention is of very little value to FB's advertising business. In exchange, FB may only offer you reduced functionality by default.

 

Say, you can use your FB, only 10 mins a day by default. For additional functionality, you have to explicitly opt-in to allow FB to use additional data for more personalized targeting. However, regulation again get FB here by requiring FB to show you all the opt-in choices with easy to understand checkboxes. When users go through these explicit choices, system 2 kicks-in and, may be, a lot of users may decide that 10 mins a day may be good enough for them, given how much data FB really needs from you.

 

Another way to think about this is that a lot of the addictive usage and engagement comes from FB's ability to appeal to our system one thinking. Any regulation that forces FB to let users pause and think may cause a real damage to engagement over the long-term.

 

Two questions: (1) how motivated are regulators globally to enforce such harsh measures?  (2) if they are motivated to do something like this, are the possible outcomes drastic to the business? 

 

Thoughts?

 

I think majority of the users would be willing to share data.

 

1. Look at the impact of cambridge analytica episode on actual users. We need to see in next couple of quarters but so far seems limited.

 

2. Look at sales of home assistant devices from Amazon and Google. They are in living room hearing you continuously. I think the market is now at 30 million households and going up pretty fast. Users are fully aware in this case.

 

3. Look at other schemes where users are willing to share a lot of data for a small prize.

 

But the user willingness to keep sharing data is the key factor that one needs to keep an eye on.

 

Vinod

 

[rishig]

One type of regulation that could made a dent in FB's business is the following:

 

Change the default setting for all users to be reduced functionality with minimal use of personal data.

 

So an example, may be, that FB can only use your age, sex, and city for doing targeted advertising by default. Obviously, with such high level targeting, your attention is of very little value to FB's advertising business. In exchange, FB may only offer you reduced functionality by default.

 

Say, you can use your FB, only 10 mins a day by default. For additional functionality, you have to explicitly opt-in to allow FB to use additional data for more personalized targeting. However, regulation again get FB here by requiring FB to show you all the opt-in choices with easy to understand checkboxes. When users go through these explicit choices, system 2 kicks-in and, may be, a lot of users may decide that 10 mins a day may be good enough for them, given how much data FB really needs from you.

 

Another way to think about this is that a lot of the addictive usage and engagement comes from FB's ability to appeal to our system one thinking. Any regulation that forces FB to let users pause and think may cause a real damage to engagement over the long-term.

 

Two questions: (1) how motivated are regulators globally to enforce such harsh measures?  (2) if they are motivated to do something like this, are the possible outcomes drastic to the business? 

 

Thoughts?

 

I think majority of the users would be willing to share data.

 

1. Look at the impact of cambridge analytica episode on actual users. We need to see in next couple of quarters but so far seems limited.

 

2. Look at sales of home assistant devices from Amazon and Google. They are in living room hearing you continuously. I think the market is now at 30 million households and going up pretty fast. Users are fully aware in this case.

 

3. Look at other schemes where users are willing to share a lot of data for a small prize.

 

But the user willingness to keep sharing data is the key factor that one needs to keep an eye on.

 

Vinod

 

I agree that users are willing to share data today. How much of our willingness to share data comes from default settings and appeal to system one thinking. Question is if regulations force platforms to allow system two thinking of users to kick-in, will we be willing to do the same.

[Guest longinvestor]

FB, GOOG et al need to worry about Murdoch and Cable more than John Doe. Regulations come from profit protection, not privacy protection.

[Spekulatius]

1) Once data is out there and shared, you can’t put it back into a “storage locker”

2) It would be nice to have a “data protection “ law that governs thr use of data by corporations and the government government

3) The first thing thwt needs to go is the Patriot Act. The Patriot Act was one of the  biggest landgraps  for individual data ever and is similar to what many totalitarian regimes have available. If people accept a Patriot Act, I doubt they care about sharing data on FB.