Desperation rules as Facebook shares continue to freefall

If anything ever proves the wisdom of that old saw, "a fool and his money are soon parted", it's the Facebook IPO. (see - Facedroop: Now $25.87 , Starting price $38) Institutional investors bought in early and in bulk, waited until the stock rose, as it did within seconds of the floatation, immediately sold out, took their hard-earned profits and left other, smaller and frankly, more naive, investors to face the consequences of opting to believe hype rather than relying on gut-based common sense.

On May 18 Facebook shares went on the market at US$38, they rapidly rose to $45 before falling back. That fallback was so severe that the shares would have ended their first day of trading at less than the opening price had not underwriters been forced to step in and buy stock to keep the share price artificially high,

That support evaporated the next day and Facebook shares closed on the Nasdaq last night (Tuesday, June 5) at $25.87. Apart from the greed and spin that made the IPO what it was - a debacle - Facebook now has to try to make good on its forecasts for revenues and profits growth, and those optimistic, not to say, fanciful, prognostications rely very, very heavily indeed on Facebook making lots of money from and through mobile devices; something that may well prove to be easier said than done.

Interviewed on CMBC last week, Eric Jackson, the founder of Ironfire Capital said,  "Facebook can even buy a bunch of mobile companies, but they are still a big, fat website and that's very different from a mobile app."

Indeed, Mr. Jackson is thoroughly jaundiced by the Facebook affair and dismisses its claims of future glory on the grounds that the company won't be around long enough to enjoy them. He thinks that Facebook's current dominance of social media is a transitory and fragile thing and says, "The world is moving faster, it's getting more competitive, not less, and I think those who are dominant in their prior generation are really going to have a hard time moving into this newer generation."

That's why, in his opinion,"In five to eight years they [Facebook] are going to disappear in the way that Yahoo has disappeared. Yahoo is still making money, it's still profitable, still has 13,000 employees working for it, but it's 10 percent of the value that it was at its height in 2000. For all intents and purposes, it has disappeared. Facebook will go the same way in less than a decade."

According to Eric Jackson, to date we have seen three generations of web companies. The first was based on huge Internet portals, such as Yahoo which aggregated content in one place.

Generation Two was the social web as exemplified by Facebook and the third is instanced by those many companies that are trying to make money from mobile platforms. Mr. Jackson says Facebook isn't up to the challenge.

"When you look over these three generations, no matter how successful you are in one generation, you don't seem to be able to translate that into success in the second generation, no matter how much money you have in the bank, no matter how many smart PhDs you have working for you. Look at how Google has struggled moving into social, and I think Facebook is going to have the same kind of challenges moving into mobile."

It's harsh judgement but Facebook itself has now been forced to acknowledge that it faces "difficulties" in the mobile space. Two weeks ago, in a statutory filing with the US Securities and Exchange commission, the company said it is finding it hard to make money from mobile apps and services and this inability "may negatively affect our revenue and financial results."

So, what is Facebook doing about this? Well, it is being hypocritical and reneging on a solemn promise and binding guarantee it gave that it would "never" target kids under the age of 13 and "never" allow ingenues unarmed into the arena.

However, and as usual, the commercial imperative overrides morality and now the company says it is "developing technology" that will allow under 13s to join the faceless Facebook legions in spite of the company's own oft-expressed worries about privacy, security, "grooming", bullying and lack of parental control.

Sure some kids lie about their age and register anyway, but that is a matter for individual families and parental responsibility. What Facebook is proposing is a straightforward and cynical negation of what it was saying prior to the IPO. By enrolling young children the company will be able to make money out of them by billing parents for the games and other apps early-teens and pre-teens then sign-up for. Hence the PR hype about the company "being in negotiations with identity-verification providers" to enable children to use the website.

As Christina Warren of the technology website Mashable.com says: "Facebook wants users to be on the site as young as possible so as they get older they can become better advertising targets and better customers for their other services."

It was the Jesuit saint Ignatius Loyola who said, "Give me a child for for his first seven years and I'll give you the man". Facebook's new maxim seems to be "Give me a child as soon as it can click a mouse or tap in a number and it'll be ours for as long as long as we can monetise it." Sickening.