At this past weekend’s TiEcon Conference for entrepreneurs, Facebook’s bold statement that “we're the cable company creating the pipes, and what they carry is social information and engagement information about people” merits a few observations.
The statement, made by Facebook’s VP / Marketing, Chamath Palihapitiya, cannot be further from the “virtual reality” that the company’s executives are living.
Cable companies know how to make money. What does Facebook gain from becoming the Internet's cable company? Palihapitiya didn't exactly say.
Get real. Are these people kidding themselves?
Cable operators have a solid business model based upon paying subscribers, in some cases shelling out as much as $200 a month, for a bevy of communication and entertainment services. Facebook’s revenue from subscribers …. Zilch.
Facebook’s investors will never see a return for their investments. This company, with a “valuation” of $15 billion will run out of cash before the VCs see a nickel. Even with revenues approaching $300 million, the cost of operations cannot be sustained (they recently lease-purchased $100 million worth of servers)…. More debt.
As revenues continue to slowly ramp up, the revenue bucket will begin to leak as marketers realize that the dollar returns and metrics simply will not support on-going investments. In other words, these up-front “investments” are testing the Facebook waters and few, if any, will likely return. The churn of marketers cannot go on indefinitely.
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