Top 10 Reasons You Can’t Get Rich Buying Facebook Stocks
Posted May 18, 2012on:
1. Facebook is a great service to help you keep in touch with friends and family. But a great service does not equal great investment.
2. When was the last time you clicked on a Facebook ad? I can’t recall when I ever did. The click-through rate for Facebook ads is 10% that for Google ads, for good reason. Google ads are delivered at the moment you have actionable intent, while Facebook ads are delivered when you don’t want any distraction.
3. As more and more people use mobile devices to access Facebook, this will present a big challenge since it is nearly impossible to display distracting ads on tiny mobile screens.
4. Facebook faces steep competition from Google+. Within one year of launch, Google+ already has 170k members, about one fifth the number of Facebook members. That number is expected to go up to 400k by year-end.
5. Facebook currently has the network effect on its side. People don’t migrate to Google+ because their friends are all on Facebook. But the network effect could come back to bite Facebook. If people do migrate to Google+, they will migrate en masse.
6. With Google+ being a better alternative to Facebook, this will limit Facebook’s options to monetize its users. For instance, Facebook can’t charge even a $1 membership fee per year now. This could cause its users to defect to Google+
7. Google has a powerful search engine. In fact, it is much easier to search for interesting content and people on Google+ than on Facebook. In the short run, this search capability is no match for the network effect; in the long run, it’s a strategic advantage that Facebook can’t match.
8. Google has the Android mobile phone and controls half of the mobile market. The future of social networking is through mobile devices.
9. The Wall Street money machine has been busy at work creating a mini-bubble surrounding the Facebook IPO. It has been so successful that Facebook shares will be sold at around $38, valuing the company at $100b, half of Google’s valuation, with less than 10% of Google’s profit. The more successful the Wall Street money machine is, the less likely you will get rich.
10. If you could get rich with Facebook stocks, Zuckerberg would not have allowed his company to go public.
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