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I am an independent author mostly tied in the the social media and technology markets. I not only have a great understanding of the financial trends that are embodied in these sectors, but accreditation as a computer scientist and economist myself. As any economist must be willing to do, I am... More
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Bisqup LLC
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  • The Resignation Of A Leader: Facebook

    Nicholas van Raalte

    The Resignation of A Leader

    Facebook has become a behemoth of the social media industry, and remains still at the top of the social media rankings despite an astounding launch for Twitter this week. There is in any case, a very threatening competitor that is emerging from the Western shadows, and has potential to cause real problems for Facebook. Twitter, on the other hand, I do not think will pose much of a threat. They are just the latest social-crazed hype. WeChat however, who is owned by the Chinese conglomerate Tencent, is rapidly approaching a userbase that top that of Facebook. Any its not too far away when this will happen!

    Facebook has the largest number of active users of any online service in the world. Currently they have a reported 1.19 billion active users subscribed to their services. This is a league ahead of many of the other large social networks like Twitter, Skype, Google+, Linkedin and Whatsapp (listed smallest to largest). These companies have a pitiful range of 200 to 350 million users. In any case they fall significantly behind that of Facebook. There is however, one party that is not accounted for in this list, and it is not pitiful in any way. This unnamed party is, Tencent, with 1.04 billion users.

    Tencent has experienced explosive growth over the last few years, and reflected their success through their stock prices. The company has made significant gains this year alone, with their stock rising 49% from November 2012. Currently the shares are trading at $401. It's amazing that a company that is primarily focused in software can become such a dominating force so quickly. This in part can be attributed to their global success with their investment of $400 million to Riot Games, the producer of the free massively multiplayer online game, League of Legends (LoL). Other driving factors of Tencent's growth include their production of QQ, an extremely successful instant messaging service.

    However, we should focus on WeChat and Tencent's combined user population for the time being. WeChat focuses on making online and mobile chat as fun and easy as possible, and have even gone so far to include voice calling and video features. Yet, anyone I ask here in the states has no idea what WeChat is. This is because WeChat's major user population resides in the Western countries. China holds the most users of the app. In fact, only about 100 million users of the app are located outside of China!

    This is where the potential for Tencent lies: in that they haven't needed to extend a global reach to acquire similar users to that of Facebook. What poses a real threat for Facebook however, is the expansion of Tencent and WeChat's userbase to international users. In a sense, Tencent has a strategic foothold in the social media industry; they have conquered the country with largest population in the world, and now need to move abroad. If their programs begin to become a major player in Europe, and the United States, Facebook may be in some real trouble. Another advantage that Tencent holds over Facebook's head is their diversification. They have expanded into many different sectors, ranging from games, to networking to entertainment. By having various networks in which their users are distributed, they can internally promote their own products at little to no cost. Facebook should take this example and follow their lead! They can only benefit by expanding their influence to other types of media.

    With a new giant quickly stepping into the spotlight, we can expect a fierce competition between the two companies Facebook & Tencent. Although Facebook has been on a steady upward trend, it seems that it may have a very rough time keeping its pace in the years to come. Faced with much difficulty to expand their content to new areas, it is inevitable that Facebook will experience some type of decline. However, Tencent is in a stellar position at the moment, currently with positions in all areas of software and media. As their price reflects ($401 per share), they are doing something right, whereas Facebook ($47 per share) could stand to learn a thing or two. We may begin to see Facebook experience a steady decline, and in the near future, even stepping down from its throne.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Nov 08 9:40 AM | Link | Comment!
  • Tech Startups: An Uphill Battle

    Why Tech Startups Are In For An Uphill Battle

    By Nicholas Van Raalte

    When Facebook was launched in 2004, there is no doubt that it hit the ground running on its web-based platform, and immediately attracted users to join. Facebook has been an outrageously successful startup, and developed into an icon of sorts for other small tech entrepreneurs. Over a nine-year period, Facebook has grown from a measly 1 million users in 2004, to a 1.5 billion-user powerhouse. There is no doubt that Facebook will continue to grow over the years, but do other small tech startups really have the same potential as Facebook did upon its launch. I doubt it.

    Step back nine years to 2004. There were two large social media baby's kicking around in the playpen. These were Facebook, with their insignificant 1 million users, and MySpace, with about the same amount. They could have been considered more of a hobby than a business. However, one important detail that both of them were bound to was their platform. Users were bound to these apps strictly through computer use. There is no doubt that a significant amount of web traffic, even today, can be attributed to computers, but upon their startup these companies did not have a need to expand to other platforms.

    As these companies grew over time, they allocated the required resources for the demand in different product lines. This was mainly the expansion from the laptop to the mobile phones and devices. But these companies had time. It would be years before the masses were using their smartphones frequently to check their emails, apps and updates. So these companies were ahead.

    That being said, there has been a stunning expansion in mobile app usage over the past three years, passing on average that of conventional computer browsing. This shift has come at the same time as a boom in the widespread use of smart phones. If we look at the growth rates of PC's to Smartphones, there sales are seriously lacking.

    "Since 2007, more than 500 million iOS and Android smartphones and tablets have been activated. By the end of 2012, Flurry estimates that the cumulative number of iOS and Android devices activated will surge past 1 billion. According to IDC, over 800 million PCs were sold between 1981 and 2000, making the rate of iOS and Android smart device adoption more than four times faster than that of personal computers," Observed Charles Newark-French in 2012.

    People would rather use a lightweight, portable phone than haul around a bulky laptop. It's just easier.

    Startups will be faced with much more competitive and pricey initiations than that of the startups in the early 2000's. In addition, unlike Facebook who developed naturally into mobile platforms due to demand, new startups will have to design their apps or technology to be accessible on duel platforms. In the current tech scene there is only one axiom that can describe tech companies competitive edge: blow up, or get blown up. These startups must focus on two types of development to be successful, pc user applications and mobile applications. Luckily the sprit of tech entrepreneurs is ready to address these tasks, but not without substantial costs. An article from osxdaily.com estimated that "complex or recognized brand apps can cost $50,000 to $150,000. " This could possibly cost even more depending on how sophisticated the apps are. However this still leaves the website to be developed which can range anywhere from $10,000 to $100,000 or more excluding hosting, and marketing.

    Aside from the financial struggle, there is much more competition in tech startups than the early years of Facebook and MySpace. Many firms are solely focusing on this niche whereas much fewer competent individuals were looking upon this sector in the early 2000's. In addition, thanks to Venture Capital competitions, many appmakers are finding themselves coding their apps for free, in the hope to be selected from a pool of submitted apps to be funded. There is a proportionally small amount being funded, and an absurdly high supply of apps. The tech market is in a bit of an imbalance.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Nov 08 9:35 AM | Link | Comment!
  • The Social Media Bubble

    The Social Media Bubble

    October 27, 2013

    In the early 2000's the United States experienced a profound recession due to the burst of the Internet Bubble. This bubble was in part created by the race of firms such as Google, Yahoo, and AOL to become the dominating web-player in the US market. Guess who won, Google, as it is currently trading at $1015 per share. Compared to the measly AOL shares ($36), and its even worse little nagging follower Yahoo ($32), Google is the outstanding champion.

    After all the major commotion made about the tech market in early 2000 many major businesses slowed their tech purchasing pace. However, this was not before they scurried to stock up on as many computers as possible, as well as enough bandwidth fit for a small village. This decrease in their purchasing was reportedly what began the downward fall in the US economy.

    There is however another similar storm brewing in the United States at this very moment. This bubble is a descendant of the notorious tech bubble, but has some notable variations in its form. However, this bubble still has the potential to cause sizeable recessionary effects on the US Economy, and most notably the technology and Internet sectors.

    When investors as well as entrepreneurs think of Internet success, what is the first major company, (besides Google) that comes to mind? Facebook! That's right, we all have one, and all probably check it at least once a day. It has become our nothing-better-to-do fallback, and for some even addiction. However sweet the story is about this small 2004, startup there is no denying the scale and brute force Facebook has come to be known for. Facebook is the ogre that does not have to play by the rules, because it set up the rules in the first place.

    Now a bit of push-and-shove makes for a healthy market, but in the case of Facebook, there is a different story. There is no push, no shove, just an immovable mass that throws the money where it deems necessary; or profitable for that matter. We have all heard of the famous acquisition of Instagram made by Facebook for 1 billion, and the recent offer of the same amount to acquire the similar photo-sharing app, Snapchat. The fact that Facebook keeps packing on the pounds is not a bad thing, but what is, is that all the others competing, or trying to, are famished little orphans who can't seem to catch a break.

    Facebook is most definitely the social media network with the most value, as well as largest user base, reaching out to over 1 billion people. It's gotten comfortable with its pace and safely far enough ahead of the pack to take an forever lasting lunch break. And its hungry, Facebook is always hungry. So in this case, Facebook begins to feed on new fads, whatever new cool app that may be, and throws the big cash lure out for the companies to bite on.

    There is also the possibility that Facebook, with their cash-wad throwing tactics, will begin to become a type of standard that new media startups will pass though. They will not compete with Facebook per say, only use Facebook as a route to a capital acquisition, or developmental stepping stone. This is how the video sharing app Vine, gained much of its user base and credibility. It has become the all to frequent fad on Facebook walls, thus helping the development and financial growth of the small New York company.

    The danger in Facebook's notorious influence in the social media scene expands past just running the game of media accusations and enabling business development. Due Facebook large-scale influence, it holds the potential not only to cripple competing business, but to cause a profound crash in the social Internet market.

    There are two possibilities in which this crash can occur. First, as Facebook continues to grow as a company, a promotion service as well as a stock, they will experience strong upward momentum. When it takes its lead ahead the others, this creates good profits for Facebook, but for the rest of the social market this becomes a giant headache. If all is well for Facebook, than that's fine and dandy, but this leaves Twitter, Myspace, Tumblr, and Vine in the dust. Faced with an inability to compete with this giant, these companies will cope in the only ways that they can; branch out into different sectors of the social media market. Now as this may lead to innovation and new forms of media, it surely won't lead to a alternative for Facebook clientele. Thus, when users of Facebook become exhausted with the timeless wall posts, and over stimulating add space, they will not have a similar platform to move to. The user therefore, is faced with one of two options, either stop using Facebook, or use Facebook less. Both of which will have negative influence on the major player in the social network, thus driving the market downward.

    The second scenario, in which a crash can be caused, is in the situation where Facebook itself experiences a sharp decline. In this case, Facebook stumbles and takes a loss for not only its investors, but the entire social Internet market as well. In the mind of an investor, what is the best way to not lose money? Stay away from failing markets. However, because Facebook is such a profound player (right now the only player) in the social market, this affect will be much greater. In addition, these investors will have extremely limited alternatives. Until November 2013, Facebook was the only major social media network to be listed on Wall Street. To be put simply, if Facebook stumbles, all the others will follow, and there are not many. This will cause a tremendous fall in the social media markets state, and possibly change the perceptions that investors have about investments in social Internet media.

    Institutional investors, as well as individuals have significantly undermined the role of Facebook in not only the Internet market, but in Wall Street as a whole. It can be safely stated that investing in Facebook was for all investors a speculative gamble. Never before has there even been an option to buy shares that were of the same breed as Facebook, and no one has had the time to learn from mistakes. We are all going to find these mistakes out together, or those of us with a sizeable position at least. This is definitely an exciting, but revolutionary time for Wall Street, as the social media market has emerged from almost thin air. Its creation can either be a potential for great riches, or for our investments to vanish before we knew what a "poke" really is.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Nov 08 9:35 AM | Link | Comment!
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