Recently I remarked that Apple’s (AAPL) entrance into the cloud will be the most important investment catalyst of the year, due to the market’s growing appetite for cloud-centric stocks like Acme Packet (APKT)m Riverbed (RVBD), etc. Today I will further articulate why.
It’s being reported that Apple recently spent $4.5 million to acquire the icloud.com domain name, which leads us to believe that a complete revamp of the Apple ecosystem is underway. Sometime in the near future, the greatest innovator of the century (so far), Steve Jobs, will take the stage and reveal to the world how the era of cloud computing will work for the next 10 years. We think that iCloud could become a viable threat not only to Netflix (NFLX) but, more importantly, to Facebook.
In the evolution of the social network sector, Facebook replaced MySpace because MySpace became too edgy/dirty for the masses. When historians look back at the Facebook stage, I believe they will view it as a transitional social platform rather than a defining technology. Whereas MySpace was, as already mentioned, too edgy, Facebook is too juvenile. Its overall weakness can be summarized in the following four points:
- An uncomfortable amount of voyeurism. Instead of being called a social network, Facebook should be referred to as the anti-social network. The majority of time spent on Facebook resembles the unhealthy and addictive practice of voyeuristic stalking. A social network is supposed to enrich and nourish relationships; such a result rarely happens from the hours spent on Facebook. Over the long run the passive action of staring at another’s personal pictures and posts will lead to an unfulfilled community yearning for something more. The weakness in Facebook as a social network is that there is too much face and not enough interaction. Our social needs require depth that comes from two-way communication.
- Juvenile communication methods. After reading point #1, critics will claim that Facebook does enable direct communication. After all, you can submit status updates, comment on other’s status updates, or even post messages on a friend’s wall. I’m going to ask you to take a step back and think about what we just said. Posting a note on someone’s wall is what a 7th grade teenybopper would do. Each time I have submitted a Facebook post, it makes me feel uneasy because I wasn’t able to accurately relay my true opinion. The shorthand norms of Facebook procedure create a stream of watered-down opinions unable to convey the intended message. Most people grow tired of pretending to be a 7th grade girl posting a note on her friend’s locker. That kind of juvenile communication is awkward and immature. Shorthand works for Twitter because Twitter is a platform of news and ideas that typically lead to relevant links. Facebook has become socially sloppy.
- A distorted social reality. It has been said that technology is at its finest when it fits so seamlessly into life that you don’t realize it’s even there. iPad users love the product because they forget that they’re holding a chunk of metal in their hands. The Facebook platform doesn’t fit this criteria of good technology. Facebook forces its users to adapt to its structure when it should be the other way around. Privacy and space must be respected in any lasting social network. Facebook data is too available for too much of the time to too many people. Facebook’s effort to mimic a social network it comes up short. The technology gives users a false sense that they actually have a social life. Facebook is more like Facadebook, as you are looking at everyone’s best marketing effort.
- The biggest Facebook users are reportedly narcissistic, insecure and have low self-esteem. Facebook has struggled to attract successful people to remain with the platform. Successful men and women typically get an account, try it out, but back off soon thereafter because of the invasion of privacy, juvenile mode of communication and a common sense evaluation that reality is being distorted. If Jobs doesn’t have a Facebook account, you know something is off. There is something uncomfortable with the warped Facebook ecosystem, which causes too many to abandon the service. Judging from the daily news feed of updates that I receive from Facebook, I estimate that 75% of my "friend" accounts are inactive. The best thing about Facebook is that everyone is on it, but what happens if they aren’t really on it? Then you’re left with a painful dose of irrelevant information flowing from the 25% of hardcore users who are narcissistic, insecure and have low self-esteem. I have a hunch that most people would relate to this experience.
Personally, I noticed a peak in my community Facebook activity about six months ago, and the ensuing decline in participation has made me uneasy whenever I think about a potential Facebook IPO. Since that IPO isn’t going to happen in 2011, as an investor I don’t need to worry about the future of Facebook, but I do think that these weaknesses in the platform have left plenty of room for a competitor to rise up.
The next Facebook will solve the problems of voyeurism, juvenile communication, reality distortion, invasion of privacy, and the endless stream of irrelevant information. I think the next Facebook could be iCloud. The Jobs model is to take a successful product, improve it, and turn it into a revolution.The launch of iCloud is Apple’s opportunity to take all the lessons it has learned from the early phases of iTunes, the App Store, and its observations of social networking to create the ultimate ecosystem and turn it into a space where people choose to spend the majority of their digital time. If iCloud is done right, it will become a central hub of your ilife that does a better job of mirroring real life. You will be in control of privacy, you will be able to enrich relationships, and you will have access to a la carte entertainment, shopping, sports, etc... I’ll be publishing my predictions of the components of iCloud in the next post. The possibility of Apple launching the next Facebook is an intriguing prospect for investors to consider.
It all comes back to the McDonald’s (MCD) analogy: For a long time, McDonald’s was just a burger joint -- but the day it added Chicken Nuggets to the menu was the same day it became the world’s largest distributor of chicken. The day that Apple announces its plans for the cloud, it will become the leader of the cloud stock move.
Apple has been preparing for this era of the cloud for years, but because of the company’s tight-lipped policy, nobody knows what’s coming. All we know is that it's spent over $1 billion to built the world’s largest data center in North Carolina -- but nobody knows what it will be used for. That Apple stock is now trading off-calendar, has abandoned its predictable constrained trading range, and is priced at the lowest level of the Jobs era with a forward p/e of 9, mean the stock is setting up for some fantastic upside volatility in conjunction with a revamp of the mobile ecosystem.
The run after this Nasdaq rebalance could be fueled by a sense of uncertain optimism that Apple stock hasn't seen for awhile. It will be very interesting to identify the new characteristics of Apple stock behavior beginning next week.