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Eureka: How Facebook won and others lost
by Jay Gutman
2017-09-21 08:40:56
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In real estate, you buy a building, rent out the appartments. Once the appartments are fully rented or bought, you buy a second building and wait for that one to fill out. When all appartments are bought in both buildings you buy a third one. You don't go crazy and buy a whole district or town.

fac1_400There's basically two ways to invest. You either have the money or you raise the money. Narratives of companies like Apple, Facebook, Google, Twitter, Instagram Amazon, Microsoft or you name it are everywhere. An ocean of books explain their success, or try to explain it. Thousands, perhaps millions of other companies try to emulate their success.

The narratives about instant millionaires are blinding. The first blindspot we tend to have is that those companies run a series of other services, from web hosting to data analytics to business analysis to banner and graphic design to new technologies like communications technologies or industrial parts incorporating new technologies to many other things. We tend to view those products merely for what we know them to be, Google for web searching and Facebook for social networking.

The second blindspot we tend to have is that it only took a few thousands of dollars of initial investment for those companies to get going. They didn't need a billion dollars to start running. How many banks and investors have no idea that it's not that expensive to start a website, say an online store or a social network. The mere search engine or social network website does not cost that much to keep running. In some shady areas of the web you have social networking websites that cost nothing to keep running, and that run with a team of volunteers.

I remember joining one such website. A volunteer had launched it, it cost nothing to produce, a few thousand joined, some discussions were interesting, then the guy who ran the website told us he was going to grad school and didn't have time to run the website, no one wanted to take the website over and it closed down. He says it cost him a lot of time to set up and operate, but except for the 10 dollars or so a month of web hosting fees, it didn't really cost him anything to operate.

I also remember shrewd entrepreneurs who took advantage of the naiveté some investors had about operating social websites, who really thought that Facebook was worth billions with income mainly coming from social networking itself. They then collected billions to start social network websites which really cost nothing to get started. You had social network websites for East Africa, for West Africa, for third division baseball team players, for pastery chefs and what have you. Millions, perhaps billions of dollars were cast to the winds. Most of the investments were lost in real estate deals, as the new social network gurus were too busy building a campus like the one in Palo Alto to really focus on diversifying the spectrum of web services offered to keep the whole thing running.

The real secret to building companies is to build them brick by brick, room by room, appartment by appartment. The first people who made billions in real estate made the billions by selling one house at a time, and lady luck struck and people were queuing to buy their appartments, not the other way around. Amazon was in the books business, Google was in the analytics business, Apple was in the personal computer business and Coca Cola was in the soda business. By the way, Facebook was in the data busines, if I recall correctly. When people started queing to buy their products, that's when their started diversifying, one unit at a time. Now I'm still assuming that most bank employees and investors still think that Facebook makes money with social networking and Twitter with tweets, that's why they won't be investors for long, but then those replacing them won't know either.

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Emanuel Paparella2017-09-21 09:08:03
Indeed, it's a Topsy turfy world. It's dubbed the world of winners and losers! One wonders who the real winners and who the real losers are.

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