When good is bad

During the dot-com crash, Microsoft lost $80 billion in a single day.

Five months later, in September 2000, Intel went one better. It lost $90.7 billion in a single day.

Until now, those were the two biggest single-day losses in stockmarket history.

They both happened as the whole idea of an internet business model was collapsing around them.

Also in the top ten single-day losses of all time are Exxon Mobil ($52.5 billion), General Electric ($46.9 billion), Bank of America ($38.4 billion) Wells Fargo ($28.9 billion) and JPMorgan Chase ($24.8 billion).

These five all happened during the 2008 financial crisis, when the whole financial system was collapsing around them.

Topping all these is Facebook’s recent one-day loss of $119.4 billion, or 19% of its entire value.

So, what system is collapsing around Facebook?

Well, erm… none.

Less good than expected

The reason investors dumped Facebook is because “its number of active users is growing less quickly than expected,” according to CBS news, and various other sources.

To be clear, it is still growing. It is still highly profitable. But it’s not growing as fast as people would like.

Its monthly active users were only up 1.54%, and it only earned $13.23 billion in revenue.

I just love that line. “It is growing less quickly than expected.”

It’s like if a boxer knocks his opponent out in the second round, but he gets dropped from his sponsors because he didn’t win the fight in the first round.

Yes, you won. But you won less quickly than expected.

Of course, the reason investors are really dumping Facebook is because they see this quarterly report as a sign of things to come. It’s not that it’s growing less fast. It’s that if the trend follows it will start losing users, and so eventually start losing money.

The day it all happened Nick O’Connor sent an email round to Sam Volkering, Eoin Treacy, me and a few others. Here’s what he said.

By now you should all have seen what happened to Facebook last night. An absolute bloodbath.

What’s the story? How does this play into our tech work? I know there’s a “Big Tech Short” idea knocking around – that big tech will be eaten alive by upcoming tech. How does that play out?

Technology, by its nature, gets superseded by better technology. So in tech, more so than in most industries, if you’re not growing you’re dying.

Everyone is well aware of just how fast a king can be dethroned.

After all, Facebook got to the top by usurping MySpace. It’s one of the most written about stories in tech. It’s used as a fable to ensure tech companies don’t get complacent.

“You don’t want to be another MySpace.”

Just as an aside, MySpace’s creator, Tom Anderson, sold the company in 2005 to News Corp for $580 million. He now travels around the world, having an amazing life and posting photos on Instagram. It turns out he’s a very good photographer. You can see his photos here.

So the MySpace fable doesn’t really hold up when you look at it.

He’s also responsible for the best internet dis of all time, posted on Twitter.

Back on topic. Here was Sam’s take on the situation.

Cannibal companies. Time and time again companies seemingly from nowhere (although they don’t come from nowhere they’re in development for years) devour incumbents. Google did it to Netscape, Lynx, Internet Explorer and Opera, Facebook did it to MySpace, ICQ and MSN and AOL Messenger, WhatsApp did it to SMS, Apple did it to Nokia – why do people think it won’t happen again.

It seems the cycle of these cannibal companies speeds up as the tech develops and gets better (technological compounding) and we’re now around 10 years into that cycle for these incumbents, the next wave IS coming it always does.

Sam’s comment here rally hits the nail on the head. People are sick of Facebook. No one is proud to be on Facebook any more. No one is excited to log on. People just use it out of habit, because it’s what people do.

It’s like in the film Dawn of the Dead. The zombies eventually lumber their way to a shopping mall where the heroes are holed up.

The heroes at first think it’s because the zombies are after them. But they come to realise the zombies are just following their instincts.

They were “zombies” in life, spending their days wandering shopping malls, doing nothing of meaning, and now they are returning there as true zombies.

This was George A. Romero’s – the genre and film’s creator’s – social commentary.

Here’s the clip from the film. And the dialogue:

“They’re after us. They know were still in here.”

“They’re after the place. They don’t know why, they just remember… remember that they want to be in here.”

“What the hell are they?”

“They’re us, that’s all. There’s no more room in hell… My grandad was a priest in Trinidad. He used to tell us, ‘when there’s no more room in hell, the dead will walk the earth.”

Perhaps if there were no more room in hell today, we’d all just be zombies, endlessly scrolling our smashed phone screens, sat at home.

A new hope

I wrote a few months ago about the rise and fall of Instagram rival, Vero: Hate-likes and the failure of “truth”.

Have you ever heard of Vero?

I’m guessing probably not. And there’s every chance you never will.

But the story of Vero is a good one. It follows that most classic of plotlines. The one of a brilliant creator who is eventually destroyed by their own creation.

In this case, the creation was spawned, and later devoured by social media.

You see Vero was a new social media upstart. It saw everything that was wrong with the current platforms – harvesting data, lack of real connection, fake lives, dishonesty, etc, and set about trying to fix those problems.

As you can probably guess, it all went wrong for Vero very fast and very publicly (you can read the full story here).

But for a brief time some of many of Instagram’s tastemakers or “influencers” thought it was going to crush Instagram and Facebook, and they left in the thousands.

It turns out Facebook (who also owns Instagram) and Instagram are harder to kill than anyone realised.

Because that’s the thing. While people hate Facebook, many still love Instagram. And many people now spend more time on Instagram than Facebook – I certainly do.

If Instagram wins, Facebook still wins.

Snapchat was seen as an Instagram and Facebook killer. But in 2016 Facebook simply integrated Snapchat’s features into Instagram – and now Facebook and WhatsApp, which it also owns.

I recently saw a chart showing Instagram stories now have 400 million active daily users, compares to Snapchat’s 191 million. Instagram’s growth is steep and Snapchat’s is bottoming out.

So a new rival might come along that starts sucking users from Facebook. But the chances are Facebook will either just buy it, or spin off its features into one of its other platforms – and then crush it.

Of course, this is the way people thought about all of the tech giants that eventually fell.

So the question is, is Facebook’s goliath too big to kill, or is David hiding in the shrubs somewhere with a slingshot?

It seems like the world is rooting for a David to appear. I’m just not so sure he’s been born yet.

Let me know what you think: harry@southbankresearch.com (I’ve spelt it right this time, I promise).

Until next time,

Harry Hamburg
Editor, Exponential Investor

PS What will be interesting will be if Facebook’s 25,000+ employees decide to liquidate their stock, and what effect that might have on the market. Up until now, they’re only ever seen their investment go up. But it can’t be easy seeing your investments drop 20% in a day. Of course, if they’re crypto investors too, they’ll probably be used to it.

Category: Technology

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