The Journal of Theory

A Digest for Hesitant Generalists

THEORY: Facebook is overvalued

We the Facebook users know that Facebook is overvalued: we never click ads, we know our status updates aren’t real commodities and most of us have considered deleting our accounts, whether due to Facebook selling our data or stealing our time.

A pair of econophysicists at the Swiss Federal Institute of Technology in Zurich, Peter Cauwels and Didier Sornette, now argue that if we model Facebook user growth based on existing data, Facebook will need to pull off a dramatic increase in per-user profit in order to live up to investor expectations. The chart below presents three scenarios for user growth:

Technology Review sums up Cauwels and Sornette’s findings neatly:

Cauwels and Sornette offer three scenarios in which Facebook eventually plateaus at a base case of 840 million, a high growth case of 1.1 billion or a case of extreme growth reaching 1.8 billion users within a few years. (The graph above shows that Facebook’s growth will probably fall somewhere between the base and high growth scenarios.)

Cauwels and Sornette then calculate a value for the company based on the prospect of each user generating $1 profit per year, the approximate average over the last five years.

This gives a value in the base case of $15 billion, in the high growth case of $20 billion and in the extreme growth case of $33 billion. All these numbers are significantly less than those that are bandied around in the press.

It’s worth pointing out some of the assumptions behind this calculation. It generously assumes that real interest rates are essentially 0% for the next 50 years, that Facebook’s profit margins remain as high in future as they are now and that its revenue per user remains constant in future.

This last one is particularly generous. Cauwels and Sornette have worked out the average revenue per user over the last five years. But the truth is that Facebook’s revenue per user appears to be halving every 3.5 years, a fall that is entirely masked by taking an average.

So these valuations are at the top end of what could be called reasonable calculations.

They imply that if the current valuations are to be achieved, Facebook will somehow have to improve its profit per user by between 1.5 and 6 times.

Good luck, Facebook! Ref: arxiv.org/abs/1110.1319: Quis Pendit Ipsa Pretia: Facebook Valuation And Diagnostic Of A Bubble Based On Nonlinear Demographic Dynamics

THEORY: Sydney Pollack should have gone in a different direction

At the risk of posting the straw that broke the meta’s back, I can’t wait to watch a documentary where Richard Branson talks about all the people he’s met who deserve their own documentary, and why. Branson on Gorbachev and his translator:

It is interesting having a conversation with President Gorbachev. He doesn’t speak a word of English, but he has had the same delightful man with him for 30 years who acts as his translator. The translator … does it so beautifully you forget you are not actually listening to President Gorbachev. He speaks at exactly the same time as the President. I can imagine the day someone makes a film called The Translator based on his life and all the fascinating things he has seen. From the break up of the Soviet Union to the end of the Cold War and the fall of the Berlin Wall.

THEORY: Probably not

Scientists asked, “Can apparent superluminal neutrino speeds be explained as a quantum weak measurement?” What they found… may surprise you.

The full paper can be downloaded here.

This is essentially a re-blog of a Justin Wehr post. Is this how blogging works? It seems wrong to re-blog if you’re not using Tumblr.

THEORY: Google is maiming the world’s only respectable social network, Reader (1,000+)

For the past three years, my internet sessions have begun with logging into Gmail and proceeding directly to Reader, Google’s RSS aggregator and semi-social network. I use Facebook and Twitter, probably more often than the average user, but out of a sense of obligation. But Reader! Sweet Reader! Compared to the pace of development of its other products, Google neglected Reader—allowing Readers the freedom to make the user experience their own, their wonderful own.

And now Google is killing Reader’s social features in an effort to force Readers onto Google+. We knew this was coming as soon as YouTube embeds by note were disabled. I do have a small hope that G+ will roll out features similar to Reader’s this week, but no Googler seems willing to confirm efforts at a seamless transition. Won’t just one of you quell our fears and night sweats?

Happily, Reader became for me a place where I could maintain relationships with a small group of exceptionally bright and interesting “IRL” friends, as well as develop new relationships with strangers and minor celebrities whose thoughts and opinions I very much valued. We weren’t forced to sift through pictures of babies or parties to find content that had passed through trusted friends’ filters, and we weren’t limited to a certain number of characters. On Reader, we couldn’t easily quantify, rank and broadcast our prowess as information sponges and sharers—we couldn’t even see how many people were following the people we followed! Our only soft metric was the number of funny and/or thoughtful comments left on recent shared stories, and comment baiting never became a competitive sport.

Reader created communities of people who were interested in content, engagement and dialogue, and there is no social network today that can replicate that user experience for the diaspora.

Google is wrong to make this decision, without assuring us of new G+ features, for several reasons:

User discontent: While I don’t know how many users regularly use Reader, it is safe to say that power users and their followers are livid at this betrayal, and at only a week’s notice. We’ve turned a blind eye to your Evil before, but no longer trust that you’re looking out for us. Bad move to alienate so many loyal users! If only Gmail weren’t so great…

Feature black hole: G+ has none of the features that make Reader a safe space for users interested in content. G+ has most of the trappings of social networks, cluttering my sidebars and congesting my white-space-y G+ feed with rubbish in which I have no interest +1-ing. (Yes, even when I only stream Sharebro feeds. We’ll have to create a social contract moving forward.) G+ doesn’t provide an in-house RSS reader, meaning any “solution” will involve lots of clicks navigating between social feature-less Reader and G+. I just tried a G+ search and cringed. G+ doesn’t provide a collapsable view, doesn’t allow for marking items as read or unread, and I can’t continue this list because it’s too sad.

International connection speeds: I live and work in northern Ghana. Even when the Vodafone link is up and the neighbors haven’t cut the copper wires, the connection is still slow and high-priced. Reader works on a slow connection like mine, while trying to load G+ is a funny joke.

Censorship dodging: Based on the Iranian response to Googler Alan Green’s post about the Reader update, Reader might be a more important global platform than I had realized. In some sense, its under-the-radar status may have allowed it to flourish in places with Internet censors, e.g. Iran or the office that pays you to be doing actual work.

Data loss: Reader curators have spent years building up archives, and you’re only offering us limited export features. Plus, come on, Google. Don’t you want to keep gathering our data? Reader knows more about me than I know about myself. Put me in a room with any of the corporations to whom you’re selling our data, and they will be super mad at you for doing this to Reader. I wish I could have access to your data on power user activity so I could spend a few weeks performing (unqualified) psychoanalysis on them.

Ironic twists, but nevertheless testament to Readers’ commitment to content sharing and engagement, are the Google Group Google Reader Diaspora and the Google Doc Petition to Save Reader. It also appears some Sharebros are creating their own RSS aggregator with features similar to Reader’s.

I love you, Reader. Wouldn’t take back these years for anything. But Google, we’re begging you to set up G+ features enabling a recreation of the Reader experience, stat.

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