Put My Money on Myspace not Facebook

Ahh… welcome back to the Myspace and Facebook debate. I love talking about the business models of social networks across the Internet.

I was reading a post from Edmund Lee at theBigMoney called Why Facebook Can’t Succeed (via alisa at socialized) and I found myself agreeing with Edmund on some of the community versus business aspects of his post. I have always been under the assumption that we were approaching another net explosion (circa 1999) because of the value of companies being placed on growth instead of revenue. It seems ridiculous to me and completely backward.

It is easy for the social media nerds of the world to bash the social networks (Myspace) that tend to be a little more “whoring” of their advertising. The truth of the matter is that users of Myspace tend to spend more time on the site compared to Facebook.

“According to comScore Media Metrix, MySpace users spend an average of 234 minutes on the site each month, as opposed to Facebook’s 169 minute per user average. Furthermore, MySpace has a bigger cut of the U.S. audience, the most lucrative, at 75 million unique visitors for January, outpacing Facebook’s 57 million.” (Edmund Lee via comScore)

I might not be using Myspace as an individual but we cannot ignore the fact that they focus more on profitability than user growth. There is something to say about Myspace still appealing to users and the overall revenue growth of the company. Facebook may have a faster growth trend than Myspace but Myspace is the smarter social network of the two. The users are still hitting the site and using the tool…that is what matters to the growth of business in social media.

We are all still waiting for the brains of Facebook to present a viable revenue model for the site (Lexicon?) but until that time… I would invest in Myspace over Facebook.. any day of the week.

Thirty-Two Percent of Influential Churches in the U.S. are on Facebook (mediabullseye.com)
Is Facebook a Cult? (readwriteweb.com)
Looks Like Facebook Just Took The Top Spot Among Social Media Sites (techcrunch.com)
Twitter Is Huge? Yes. Twitter Is a Popular Marketing Tool? Probably no. (profy.com)

Posted in Investing, Venture Capital, social media

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20/10 2008

Warren Buffett Was Right in 1999. Web 2.0 Firms Should Listen.

Book cover via Amazon

I am in the process of reading Alice Schroeder’s book entitled The Snowball: Warren Buffett and the Business of Life. The book is a massive source of information about the life of Warren Buffett. Needless to say the book is unbelievable! I love to read about the life of people who, in my opinion, have lived a valuable and influential life.

At the beginning of the book Alice recounts an event from the Sun Valley Conference in Hailey, Idaho. Allen & Company, a boutique investment firm in Hollywood handles the event inviting such notables as Bill Gates, Oprah Winfrey, and Rupert Murdoch.

In 1999 Warren Buffett was asked to be the keynote speaker to end the conference. This was a special year because the conference was filled with Internet tycoons ready to embark on billion dollar ventures in the new year. They were invited and were making the most of rubbing shoulders with the richest individuals around the world.

The Internet tycoons walked into the conference room that day hoping for a glowing reception and the blessings from one of the greatest investors of our time. What they received was quite the opposite.

Warren Buffett practically dismantled the belief in the new Internet startup companies. He likens the Internet Boom to that of the airline industry:

“…So I submit to you: I really like to think that if I had been down there at Kitty Hawk, I would have been farsighted enough and public-spirited enough to have shot Orville down, I owed it to future capitalists.”

“It’s wonderful to promote new industries, because they are very promotable. It’s very hard to promote investment in a mundane product. It’s much easier to promote an esoteric product, even particularly one with loses, because there’s no quantitative guideline.”

Warren Buffett, pg 19.

Most of the venture capitalists and entrepreneurs left the meeting slightly chuckling at “old Warren’s mistake.” They found out later that he was exactly right.

Web 2.0 companies should listen to Warren Buffett. He has always cautioned the vamping of over-promoted companies and increasing investment in techonolgy companies with no substance.

“You can get in way more trouble with a good idea than a bad idea, because you forget that the good idea has limits.” -Warren Buffett, page 21

I have always been a skeptic of increasing investment in social media and web 2.0. I do love the sites and I love the fact that they are free. I have a problem with the valuation of multiple billions of dollars for the site like Facebook.

This is a dangerous game we are playing when it comes to the multitude of millions of dollars invested in Internet startups. I am afraid we never learned to begin with.

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