FACEBOOK

When Facebook was floated on the stock exchange back in May, its shares were priced at US$38 each. Today they hit a low of US$18.75. That still makes it a US$50 billion company, which is not bad after a life of under 10 years. But a 50% fall in three months represents a terrible investment. Why?

In an earlier Tweet I said that I thought that the issue price was a tad overblown. In fact, I have to admit to being rather sceptical of the whole Facebook idea. True, I am a member; but that's mainly in order to keep in contact with my children, particularly my second son in Switzerland, who doesn't have a computer, and who seems to be permanently incapable of keeping possession of a mobile telephone for longer than two weeks. So much of Facebook's content is of the "hi, I'm doing x, what are you up to?" type. Which can be interesting, but is rarely informative. OK, maybe I am just old.

However, my scepticism turns into disbelief when it comes to Facebook's business model, which is based on advertising. The problem - for me, at least - is that the vast proportion of advertising is designed to make us buy things, yet Facebook is not intuitively the place to go to if you are thinking of making a purchase. Chatting to your friends, yes; sharing family pictures, yes; organising a party or protest, yes. Buying a new sofa? No. I would start with Google and go from there.

It's undoubtedly the case that if you have roughly a billion digital customers, then that must count as an asset in today's world. The difficulty is turning that asset into money. I for one would not be a member of Facebook if I had to pay for it; I suspect that is true for quite a lot of other people, young as well as old.

So, back to the question. I think that in the run-up to the share sale, everyone focussed on the number of customers and not many focussed on the "turning them into money" aspect. After the initial hype, the latter is becoming more important, and the solution is not at all clear.

Walter Blotscher