Facebook crashed to 50% loss... but still is a great project...

Facebook shares touched a 50% down level. The moment of truth was at 15:56 ET on Friday when the price fell to $19,00 per share. 4 minutes later the market closed at $19,05. As we remember the starting price of IPO was $38, and for some hours after that it even touched $45. But after that the trend was constantly bearish, to reach on Friday the milestone of $19 that means 50% loss since the IPO, and even more, compared with the historically record price.

This scenario was predicted, and according to the same prognosis, $19 is not the end. The real economically backed price of Facebook shares is $2-3. If we assume some powerful global financial factors can influence this price in up direction in an effort to help Facebook being their customer, may be the price can be stabilized at $4. But till this level there is still $15 to fall.

Some analysts say the reason of price fall is the lifting of restrictions on share sales by its biggest investors. But this is no reason, it is just a trigger. The real reason is the low level of sales and very entangled business model. In fact no one knows the exact business model of Facebook. It looks as it must rely on advertisement. But it is a joke to expect so much ad-income to support a $100 billion valued company.

Facebook is just a site. A good and brilliant as idea site. But nothing more. A site can not cost $100 billion. It can not cost even $50 billion. I think it will be a great success if it costs a one-digit billion number of dollars.

So the general prognosis is for shares of Facebook to continue their move down. There is so much distance still to pass... :)

Anyway Facebook is still a great project and being better managed can bring lots of money. My own opinion is that some more attention must be given to the content creators in Facebook. Facebook is not only a social network. It is also a large global media, created by its users. I think Facebook can win if implements some motivations for these users, or at least for the most active among them. Facebook can pay the users that create most content, or share some of the ad-income with them. It can also become more open in collecting third-party ads. For instance it can allow placing Adsense ads in users profiles and taking some of the income.

The Adsense system is the fundament of Google's business model. It allows Google ads to appear at user's sites, creating this way an enormous ad-network. In fact Google uses the ad sales of millions of small sites, realized via AdWords automatic system.

There is no reason for Facebook not to do the same. Facebook is a mini-Internet environment that has everything needed to work alone. You can have sites, develop applications and so on. So why not to motivate the people that are doing all this? Just the way Google motivates site-creators with Adsense?

The content is the heart of Internet, and for FB it will be useful and profitable to understand that and to give some reward for content-creators.

Facebook can also have a better search engine. Now it is very difficult to search even only in the Facebook site.

But something more can be done. Facebook can evaluate the sites in all Internet via the links, published by users in the social network. It is possible this way to reach better results than with Google algorithm. I.e. Facebook has enough information base to become a search engine. In fact, it has information that Google hasn't. I think this is a serious advantage that still stays unused.

Generally Facebook is still a great project with high potential. At the moment this is the most visited site in the world, according to Alexa rank system. It is in close competition with Google. But as we remember in not so far away times, Google was the ultimate leader with no competition. Now FB is here too.

Facebook is a great project. It was initially over valued and transformed into a market bubble. But it still can become a great business, although no a $100-billion one. Much managers and executives now are leaving Mark Zuckerberg, and this means than no one has an idea what to do to develop the business. Let's hope this will bring in company managers that know how to make money from this gold, but some more complex, mine...

August 19th 2012

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