If Facebook is flopping on Wall Street, what does that mean for the vast ecosystem of Facebook-dependent models? Like Spotify, which is about to get puffed into the stratosphere by Goldman Sachs? The reported $220 million Spotify round would feature a $100 million injection from Goldman, according to the New York Times, and a huge part of that investment is predicated upon plum Facebook integration.
In fact, it's a major ingredient in a Spotify shell game that features monstrous Wall Street expectations, and gargantuan profits for a small group of Spotify, major label, VC, and Goldman stakeholders. It bears similarity to other social-oriented startups, which would be reduced to scraps without a tightly-wound Facebook tie-in. But what if Facebook fails to perform - on Wall Street or elsewhere - and becomes a victim of its own insane hype?
You can blame Facebook's lukewarm reception on the Nasdaq glitch, which cancelled some high-flying bids and killed early momentum. Or, you can look at more fundamental valuation and hype problems, including a stratospheric earnings multiple that dwarfs established tech players like Google and Apple. Facebook may be worth $100 billion someday, just not right now. And there's just as much reason to argue against that ultimate reality, especially given the rough history of social networking startups and ad-based plays.
None of this is good for Spotify. Peel the Facebook layer back, and there's a bleak story for music startups. Pandora (P) is the publicly-traded poster child we know well: it has 150 million-plus registered users and a model that amazingly worked, but that means little to tough traders. It just isn't profitable, and even if Pandora becomes profitable, it becomes hard to reasonably scale with variable-and-increasing royalty costs.
Unfortunately, these same questions are likely to dog Spotify, especially at a valuation of $4 billion (or more).
Erik P Monday, May 21, 2012
When are these start-ups going to learn? Piggy-backing on someone else's already successful platform is bad business.
FarePlay Tuesday, May 22, 2012
What we really don't know is how Spotify's licensing fees are structured into the future.
While we have heard about a vague promise that Spotify will raise payments to artists based on future revenue / profitability; you could safely wager that those increases are not factored into revenue projections being presented to potential institutional investors at this time.
And it certainly hasn't been mentioned as a possible area where this new funding would be directed.
I don't think anyone believes that Spotify is really concerned about artist compensation on their journey to world domination. And if they succeed they will set the bar for artist compensation from here forward.
Mike S Monday, May 21, 2012
"Facebook Just Flopped"
Except, they didn't. All this means is there was no bubble. it seems to be holding its value and might be just fine in the long term.
Remember MySpace Monday, May 21, 2012
In a few years we will be saying "Remember Facebook"
Dump and run. Ads dont work privacy issues everywhere, no respect for the users, the list goes on.
jw Monday, May 21, 2012
MySpace was always mismanaged. From the start, the site was a hodgepodge of poorly coded, table-based design, & it only became more messy as time went on. They were never a serious technology company & never had serious plans for the future, they always had a bubble-type mentality that they would just keep growing no matter what.
Facebook, however, has been more strategic about it's growth than any dot com ever has. Buying Instagram was a pretty shrude move, & shows a very serious long-term strategy to 1) stay relevant, 2) retain traffic, & 3) oust any competition. MySpace was always incredibly vulnerable to loss of marketshare, Facebook isn't... they learned that lesson on the way up.
The privacy concerns are, obviously, overblown. And the mentality of the internet at large continues to shift in Facebook's favor. The outcries are necessary growing pains, & Zuckerberg has endured them better than anyone could've imagined. The difference between a company like Facebook & a company like MySpace is staggering.
How profitable Facebook will be remains a question, but as it's users become more & more comfortable with sharing information online, their potential for profit rises higher & higher. The idea that they will disappear, however, is absolutely ridiculous. And anyone suggesting such a thing doesn't realize how deeply the Facebook platform is rooted in the broader internet & hasn't been paying attention to the strategic moves they've made over the last few years. Twitter may disappear, Pinterest may disappear, Tumblr may disappear, but Facebook isn't going anywhere.
It's going to take a while before all of the conditions line up to allow them to be really profitable, & the stock will probably fall until then. But when they get it right, it's going to be like owning stock in the internet.
That's what I think, anyways.
Produce Monday, May 21, 2012
Apples to Oranges.
keithmohr Monday, May 21, 2012
they need to monetize mobile, and while they are at it, speed up mobile access. They also priced shares too high. Should have kept them at 28-34$ and it would be at $50 today.
wallow-T Tuesday, May 22, 2012
Why should Facebook have underpriced its shares so that stock traders could make short-term gains?
The purpose of the IPO is to raise money for the company. The behavior of the stock since the issuing indicates that Facebook left very little money on the table. Good on them.
Now, I wouldn't have bought it, but I'm not a stock guy.
Good analysis here - Monday, May 21, 2012
Chris Tuesday, May 22, 2012
Supers Tuesday, May 22, 2012
Spotify requires a Facebook account to use, so if users leave Facebook, they lose Spotify too.
croels Tuesday, May 22, 2012
That's not true.
Supers Tuesday, May 22, 2012
Yes, it is. Spotify closed new account registrations on September 22nd 2011 and uses a Facebook login from every user who signed up after that.
If you signed up before that, you have a username/password without a Facebook tie, but over 80% of Spotify users signed up after the Facebook deal and are tied to Facebook. So they're going to die if Facebook suddenly does something bad that makes people leave in droves.
Supers Tuesday, May 22, 2012
I mean Spotify's going to die if people start leaving Facebook. Sometimes I wish we could edit messages here.
Marc Jacobson Tuesday, May 22, 2012
Facebook isn't going to go out of business simply because the stock has a lower valuation than the price paid in the IPO. They now have a $16 billioin warchest with which to innovate, acquire mobile based companies, like Instagram and just do better at what they were doing.
The comparison of an ad-supported business to a subscription business is really off the mark. Compare Facebook to Pandora, sure. But Spotify makes its free service very limited as a means to secure new paying subscribers.
One cannot ignore hundreds of millions of users going into the same controlled environment many of whom will click on ads. Its fertile ground for advertisers. As to the fact that you need a Facebook account to use Spotify, thats OK too. It may not last forever, either.
I wouldn't count Facebook out in the long term or the short term.
Just Another Voice Tuesday, May 22, 2012
So, is Pixar going to go out of business anytime soon? How bout Sirius/XM?
I ask because I bought Pixar as an IPO and lost 66% of my stock value in the first six months.
I bought Sirius/XM separately and have since been trying to get my valuation back to where I bought in.
First order of business ... don't buy in first day unless you can handle the loss .. wait .. then dollar cost avg your investment over time - and do not watch the dailies - the volatility will kill you ;)
underH2O Tuesday, May 22, 2012
So, is Pixar going to go out of business anytime soon?
How bout Sirius/XM?
> quite possibly
your point is? the question is what this means for Spotify's IPO ambitions. probalby means they are soggy at best
@samhouston Tuesday, May 22, 2012
I like Digital Music News, but this article seems a bit sensationalistic.
@beckystanway Tuesday, May 22, 2012
"None of this is good for Spotify"
I hope not!
@Cskoyles Tuesday, May 22, 2012
Not sure it did, but OK
jw Tuesday, May 22, 2012
The market isn't going to have real handle on Facebook until Facebook has figured out how to properly monetize themselves. If you believe that they're making all the revenue they're ever going to make, then the value is far less than the $31 it's at right now. Beyond that, it's speculation. If you're buying in right now, it should be because you believe in profits that are in the near to distant future, & this nearterm fluctiation should mean didley squat. The only reason they went public before they're properly monetized is because it will give them to cash to get there faster. Everyone wants to draw a million parallels to make themselves look smart, but the truth of the matter is that there's never been a Facebook before, & it's just something that's going to have to play out.
I haven't heard a single person say that, because of the IPO, or because the stock isn't shooting through the roof, that they're going to leave facebook. I haven't seen any indication that Facebook will do anything but continue to grow. So I don't see any implications this has for Spotify.
It's peculiar that so many people are just anti-technology, rooting for everything to fail, as if that's going to make things go back to the way it used to be, instead of looking towards the future, trying to figure out how to monetize things going forward. What makes Facebook different from other online services & what makes them successful is that Zuckerberg is a visionary with the balls to implement things that his users might not be ready for. This is essential becuase if you refuse to evolve as a digital corporation, someone else will take the idea you're too scared to implement & they'll build it from the ground up without the friction a user base's expectations & you'll lose marketshare because ideas are always going to win & the evolution of the internet can not & will not be stopped. This is the reason the music industry is in the shits right now, because of this pervasive anti-technology attitude & a complete & total lack of vision for the future.
Maybe I'm an armchair quarterback, but as far as I'm concerned, Spotify is the only bright spot in a rather bleak decade for the music industry & I'd expect the industry would be doing more in hopes of entering an age where everyone is shilling out $10/mo for music & revenues return to where they were. Give Spotify the retailers' cut, & get on with it. Surely agreements can be reached that will ensure the longevity of the recorded music industry.
Maybe I'm wrong, but when I put on my future glasses, it all seems pretty simple to me.
joed Wednesday, May 23, 2012
Are you a Facebook employee or a Spotifier?
jw Wednesday, May 23, 2012
Neither. I don't have a dog in this fight, just an onlooking consumer.
uptoeleven Friday, May 25, 2012
All it means for Spotify is that facebook right now isn't worth what it was. Big deal. You won't see users leave facebook in their droves because the share price drops. As long as they can keep doing on facebook what they like doing on facebook they'll stay on facebook.
Now - when facebook works out how to make money properly - you watch it's value at that point. Right now they don't know how to monetize their userbase. They tried advertising to them but the users are fairly savvy and aren't open to crude advertising - facebook already know this but if people want to pay to advertise they won't turn you down. Facebook is good if you actually want to engage with people, if you understand how to communicate with people, most of the people advertising on there haven't a clue. Find a way to monetize that and watch the stock soar.
In a way they've done the hard part. Building up the loyal following is tough and they have millions whose lives wouldn't be complete without facebook, that's a hell of an asset. Now for the easy bit - working out how to exploit that network for profit
@jamiekingmusic Friday, May 25, 2012
A good read.