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As someone who makes a living off the Internet, and more to the point, from the field of social networking, I’d like to think I’m riding a winning horse.
Perhaps that’s why I paid particular attention to a column in the Wall Street Journal by a leading investment advisor who says he tells clients to “run for the hills when it comes to advising clients to invest in the Internet.”
The column, by James Altucher, a managing partner of Formula Capital, makes the case that while the Internet has become an indispensable tool for virtually any business, it deserves to be treated more like a utility from an investment standpoint than as a startup with unlimited potential. The problem, he says, is nobody can find a valid business model for many of the hottest Internet companies – like Facebook, Twitter, and MySpace.
Altucher goes on to point out that Time Warner would rather keep its old-media businesses like People magazine than hold onto AOL, and that News Corp. is in the midst of shaking up MySpace as it attempts to figure out how to make money from its hefty investment in the social networking phenomenon. Even Microsoft, he argues, “has spent billions on Internet strategy without a dime of profit.”
Rather than put your hard-earned dollars into an Internet investment, Altucher advises instead to safely stash your money into an electric company, a highway repair business, or an asphalt maker.
Now, I’m not going to attempt to refute Altucher’s viewpoint, because for the most part I agree. Most of the Internet stars of today will be forgotten tomorrow, just as they were in the days of the dot com era. But let’s not forget that out of the ashes of the dot com era, a few real, high-growth companies did emerge - and some, like Google, have become the Microsoft’s of the day.
Facebook, for one, claims it has added 50 million users in the last three months, and now has about 250 million accounts. More than half of those users, says CEO Mark Zuckerberg, log on every day.
So, consider this. Which is the safer bet – that Facebook won’t be able to figure out a way to make money off 250 million users, or that it will?
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