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Internet giants can earn with ease, it's the churn they must fear

''Don't be evil'' ... Google.

''Don't be evil'' ... Google. Photo: Tamara Voninski

Google used to be holy. The company's motto was, and presumably still is, ''Don't be evil''. How about changing it to something more practical, like, ''Don't be irritating''? Google was once a brilliant research tool with no pretensions. Now there is overt manipulation and a desire for more control. Google has begun forcing me to consider joining its stupid social media network.

My response has been to switch my search engine to Bing and abandon plans to activate a Google Mail account. Why are they trying to turn themselves into Facebook-plus? A Reuters poll released this week found 34 per cent of Facebook users had reduced their time on the site during the past six months and 80 per cent had never bought anything via the site and don't want to. Time spent on Facebook is being eroded by explosive growth in mobile phone usage.

Another survey found a significant erosion of respect for Facebook since it became a public company on May 17.

Three weeks ago the stock market was overwhelmed by the number of people who wanted to trade shares in Facebook when it launched trading. A record-smashing 565 million Facebook shares were traded. The company placed a value on itself of $US104 billion.

As of this morning, the market value of Facebook was half that, at $US55 billion. The company's shares have fallen 32 per cent from the $US38 issue price to $US25.87 yesterday. As the price fell to this new low, one analyst predicted Facebook, despite having 900 million users, would follow the value trajectory of Yahoo! Inc.

''In five to eight years Facebook will disappear in the way Yahoo has disappeared,'' Eric Jackson, the founder of Ironfire Capital, told CNBC. ''Yahoo is still making money, it's still profitable, still has 13,000 employees, but it's 10 per cent of the value that it was at the height of 2000. For all intents and purposes, it's disappeared.''

Actually it's only 9 per cent of peak value. Yahoo! has seen the destruction of more than $US150 billion since peaking in 2000.

''I see that happening for Facebook,'' said Jackson. ''When you look over the three generations [of the internet], no matter how successful you are in one generation, you don't seem to be able to translate that into success in the next generation. Look at how Google has struggled moving into social [media], and I think Facebook is going to have the same kind of challenges moving into mobile.''

Google's share price has stagnated for four years. It is lower today than it was in 2008. Facebook, even at its quickly reduced market value, is trading at a multiple of 66 times earnings. This is almost five times the historic average for companies. It means the company priced itself when it came onto the market at about 80 times its present earnings.

This is hubris. Especially considering that Facebook is being cannibalised by Twitter. ''The world is getting faster, it's getting more competitive, not less,'' says Jackson. ''So no matter how dominant they are in one generation … something new is going to come along that we haven't seen yet. It probably doesn't exist. Yet people are going to be fascinated by it and not Facebook.''

History confirms the expectation of accelerating commercial flux, of intense cycles of insurgency, dominance and decline. Yahoo! was founded in 1995, Google in 1998, Facebook in 2004, Twitter in 2006.

The creative destruction of capitalism has never been more creative and never more destructive. Accelerating innovation changes the way people communicate and consume.

On February 6, this column singled out the Australian brand that combined patriotism, glamour and solidity like no other. That brand was Qantas. We suggested patriotism, prestige and solidity combined may not be enough for Qantas to survive as an international flag carrier within 10 years. In the ensuing four months, the company's share price has slid by a third to a record low as losses in the international division have climbed to $450 million a year.

The numbers show just how reckless and stupid was the union campaign against Qantas last year. Again, technology had transformed the competitive landscape. The internet may have been a boon for the Qantas budget operation, Jetstar, but it has obliterated many advantages once enjoyed by the international division.

No company is safe. No brand is safe. Dominant one decade, irrelevant the next. Adapt or die. And former customers will step over the corpse.

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49 comments

  • Paul just doesn't have it right.

    Previously Google did just snatch information (a few years ago) but now they have given us the tools to decide.

    Perhaps a little more education in computers, democracy, human rights etc etc etc ..... oh god ! for Paul the list just goes on & on.

    Commenter
    J. Fraser
    Location
    Queensland
    Date and time
    June 07, 2012, 7:56AM
    • @J.Fraser you've been in the sun too long. Put your hat on and slap on some sun-cream, up there in Queensland. Google have had dismal failures in their attempts to crack the "socialisation" of the internet, remember Google Wave ?

      Google Plus is holding on, only by it's finger tips. Their mail application, although hugely popular has serious usability problems for larger volumes and has plateaued in it's user base.

      Facebook pilfers your data for free, and pimps it out. Average valuations on the NASDAQ are around 12-15 times EPR. So, this measurement demonstrates that Facebook's value is grossly over-stated.

      It's no surprise the share price tanked. It's valuation was expecting a revenue stream of over $7billion dollars when it has only made a $3-4 billion in the last 8 years! So, Facebook now has to deliver, or we'll see it's shareprice fall to about $15 in 12 months. Paul Sheehan is making a reasonably credible prediction. MarkZ is now setup as are his minions, but like anyone, it's all crystal ball stuff.

      Commenter
      Bob Timmins
      Location
      Sydney
      Date and time
      June 07, 2012, 12:06PM
    • WTH? At least counter facts with facts. Your response is just a fanboy drivel.

      Commenter
      c1ee
      Date and time
      June 07, 2012, 12:41PM
    • @"Bob Timmins" & the other juvenile.

      Google .... get it ?

      Not Bing ... get it ?

      Not Facebook ..... obviously you don't get it otherwise you would not waste your time with it.

      Commenter
      J. Fraser
      Location
      Queensland
      Date and time
      June 07, 2012, 2:38PM
  • Paul joins bing just because google asked him to join their social network. You've just proved you're too old for the internet paul. Google is still miles better as a search engine than bing and if you switch just because of a bit of advertising, you should get out entirely.

    Commenter
    Brett
    Location
    Sydney
    Date and time
    June 07, 2012, 8:27AM
    • Paul mauls Google because he's picked up the 6-month-old meme that it's now okay to attack the best search company in the world because a) Microsoft desperately want their top-dog status back and b) Apple desperately wants a slice of the search action and c) Facebook is desperately trying to make money out of its free service and d) in journalism it's important to first build up something and then bring it down -- that way you make money in both directions. And SMH is desperate to make money.

      Also Paul mauls Google because he has limited imagination and since his job is to be the provocateur in SMH, he has to find something new (Gillard/global warming/etc) to maul.

      And finally folks, Paul mauls Google because he can.

      Commenter
      Max of Sydney
      Date and time
      June 07, 2012, 12:21PM
  • I'm not too sure what you're getting at here.

    You point out that technology is an ever evolving landscape and that companies must adapt or die yet you lambaste companies that do.

    We've seen the rise of social media within the past 10 years, with more ability for user created content to be uploaded and distributed. MySpace was far from the first but it's one of the more memorable, they didn't adapt and got taken over (market share wise) by Facebook. Google still pretty much the go-to for internet search has attempted to match the social media with Buzz, Wave, and now Google+, none of which are all that competitive with Facebook but they're definitely not as intrusive as you suggest. You mention Microsoft Bing as your new Search Engine, remember Microsoft Live? No neither do I. What about Hotmail, MSN...

    All of these companies have evolved at some point, taking on features of their new competitors. Facebook has evolved to be more like twitter, Google+ has evolved from the ashes of Buzz and Wave, Bing has evolved from the ashes of Live, MSN and Hotmail.

    Commenter
    Aargh
    Date and time
    June 07, 2012, 8:28AM
    • err...the unions don't run Qantas, the management do. Sheehan's analysis is, typically, ridiculous. I've thought for years that Qantas wouldn't survive as a national carrier. The problem being that Australia is a terminus for a lot of flights, it's not a hub. You'd think someone so fond of recounting his international travel experience would know that.

      Commenter
      Patrickb
      Date and time
      June 07, 2012, 8:39AM
      • Sshhhhhhhhhhhhh, don't tell him that. It may give him ideas!

        Mr Sheehan's problem is that like most ideologues, when the facts don't support your case - bash something else.

        QANTAS stopped being 'patriotic' when they became a private company.

        They stopped being 'solid' when they became a private company.

        The unions don't set company policy and they don't determine future actions by the company - the act to prevent the company from disadvantaging the workers.

        Mr Sheehan can't see that the company made bad decisions - it doesn't fall into the section of his ideology which allows bagging unions. He can bag a company when it doesn't contradict the rest of what he's written.

        Commenter
        PatrickEB
        Location
        Sydney
        Date and time
        June 07, 2012, 11:06AM
      • Don't say such things!

        It's a well known fact that Australian airlines have difficulty being profitable because of the distance and lack of a significant travelling population nearby (Indonesia may well have a 230+ million population but very few of them fly internationally).

        Additionally, many of the big airlines are supported by their governments.

        In both instances this has little to do with unions and mostly to do with other facts...but let's not let THOSE get in the way of an good (?) story.

        Commenter
        PatrickEB
        Location
        Sydney
        Date and time
        June 07, 2012, 11:15AM

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