I have recently finished Seth Godin's latest book, The Icarus Deception (which is not good btw), and it has led me to conjure on the most basic business question: What are you selling? And I mean this in the most absolute, rock bottom sense of the question. No marketing. No advertising. What is it that you are selling?
For some reason, the question immediately led me to the thought of, "What is Starbucks selling"? How has Starbucks been on such an incredible tear opening thousands of stores a year? Starbucks sells the second most traded commodity in the world, coffee. And it's just that, a commodity. Anyone, anywhere in the world can obtain the exact same beans, roast them and brew them exactly the same as Starbucks and have the same quality of product. What is Starbucks selling?
It's truly an incredible thought. With most of the things or services you purchase in a day, your focus is on price, quality, experience etc. There are quantitative measures that you go through (even if they are subconscious) to come to a rational decision. But why do you wait in the drive thru at Starbucks to get a generic cup of hot water that you could get at any coffee shop in the country? Why do people flock to Starbucks?
Starbucks doesn't sell coffee. Coffee is just the medium through which Starbucks sells the brand. This is a very important point. No matter what line of business you are in, you're not just selling the product, you are selling the brand, you are selling yourself. Howard Shultz lives and dies by coffee. He is the most iconic, inspired coffee drinker of all time. He sold himself and in turn sold everyone on Starbucks.
For me, this is a major revelation. I am all but over the current business we are in. Mentally, I'm just checked out and ready to start anew. Everyone I've encountered has asked me, "Well what's next?". I've avoided all their questioning because I really haven't given it much thought. Certainly, there will be a "next" idea but I don't know what it is. Ultimately, it doesn't matter what it is. With this knowledge in hand, I could sell anything I am passionate about. The medium doesn't matter, it's the message that matters. And that is, "What you are selling". It's not a product or service, it's the message or feeling that that product conveys to the end user. Harness that feeling and you can sell anything.
Friday, December 13, 2013
Saturday, February 9, 2013
Kill Facebook
Since my last post about Facebook on May 23, 2012, I have become an obsessive cynic. Today Facebook is trading at a PE of 1,903. Yes, 1,903. Facebook as a business is fundamentally flawed and it's valuation is even more flawed.
Facebook was founded in 2003 to connect people through the internet. I know, I was one of the original classes of college freshman who joined Facebook back in 2004. Facebook took an industry that was dominated by Myspace and became the purple cow. No longer was it hipsters and bands but it was just anyone looking to connect through the internet. Over the years, Facebook has grown to 1 billion users. Which brings me to my first point. There are only 2.5B active internet users in the world, at this point, Facebook can only grow another 250% assuming 100% market penetration. Trading at a PE like the above, should assume there is huge growth potential in the market - there isn't.
But the point of Facebook is no longer to connect people. The point is to advertise. Facebook trades at this crazy valuation because investors (and fools) believe that Facebook will change the way we communicate with customers. I say "we" because I am a small business owner who can speak from experience advertising on Facebook and not from "potential", which is Wall Streets perspective on how Facebook works. Facebook is great. It allows us to connect with our 12,000 fans through pictures and videos, allows us to communicate deals and specials and receive feedback all in the same place. A novel idea for sure. But how valuable can that really be? Advertisers spend about $500B worldwide annually. Currently, about 25% of that money is spent online. As the world races to, "get connected" surely that figure will increase. So let's say Facebook can possibly capture 50% of that market (if it will even be allowed by the FTC), that pegs us at $125B in revenue annually - currently more than AAPL. These assumptions are at least what investors are hoping for.
Facebook was founded in 2003 to connect people through the internet. I know, I was one of the original classes of college freshman who joined Facebook back in 2004. Facebook took an industry that was dominated by Myspace and became the purple cow. No longer was it hipsters and bands but it was just anyone looking to connect through the internet. Over the years, Facebook has grown to 1 billion users. Which brings me to my first point. There are only 2.5B active internet users in the world, at this point, Facebook can only grow another 250% assuming 100% market penetration. Trading at a PE like the above, should assume there is huge growth potential in the market - there isn't.
But the point of Facebook is no longer to connect people. The point is to advertise. Facebook trades at this crazy valuation because investors (and fools) believe that Facebook will change the way we communicate with customers. I say "we" because I am a small business owner who can speak from experience advertising on Facebook and not from "potential", which is Wall Streets perspective on how Facebook works. Facebook is great. It allows us to connect with our 12,000 fans through pictures and videos, allows us to communicate deals and specials and receive feedback all in the same place. A novel idea for sure. But how valuable can that really be? Advertisers spend about $500B worldwide annually. Currently, about 25% of that money is spent online. As the world races to, "get connected" surely that figure will increase. So let's say Facebook can possibly capture 50% of that market (if it will even be allowed by the FTC), that pegs us at $125B in revenue annually - currently more than AAPL. These assumptions are at least what investors are hoping for.
Subscribe to:
Comments (Atom)