But one thing we’re sure is right is this: when the insiders are selling — and, boy, they sure are selling this piece of you-know-what — the stock is over-valued.

Insiders cashing out? All we can hope is that they spend a lot of the next several years giving fraud depositions and defense testimony. They are fleecing the public — the same fools who made this time-sink so popular. We love the irony.

The need to monetize users has through advertising has already been thoroughly analyzed, but I think most people are underestimating the fact that there is a limit to how much people want to interact with their friends. Continuously updating your Facebook profile takes both time and energy, something that for most people is already in short supply. Nevermind the time and energy it takes to keep up with all your friends on Facebook as well.

Right now I would guess that a huge portion of Facebook’s users are single and not in the workforce (either because they’re in college or unemployed)…i.e. people with a lot of free time. However, as they get married, get jobs, and have kids, a lot of that free time will disappear, and the amount of time they have available to spend on Facebook will decrease.

Most people forget that Facebook, by virture of being dependent on its’ users to generate content, is up against two of the most immutable forces in nature…laziness and entropy.

You think Facebook is in the “blue web pages” business. I am pointing out that it is not — it is in the “human(s) to human(s) communications” business, and that is a huge business. Each of the examples I gave is, yes, competing with an existing business — but the assumption is that Facebook can leverage what it already has to do the job better.

Consider my communal movie watching example — yes in theory you can cobble together something like that with NetFlix or Amazon or iTunes. But Facebook is the guy that can write, on Joe’s page: “Joe is currently watching (and mercilessly mocking) ‘Green Lantern’ with Bill, Mike and Sue — do you want to join them?” And this will work, because Joe’s, Bill’s, Mike’s and Sue’s friends are all already in the habit of looking at Facebook pages to see what their friends are doing.

A bet of Facebook is a bet on
- people will find ever more ways to interact with friends via the internet
- Facebook will do an adequate job of supporting these new interaction modalities
- competitors will not do as good a job.

I’d say history so far bears out all three of these assumptions.
(The third might be controversial, but Google+ is struggling, Ping is basically dead, and Twitter, while successful, does not have the history of growing its vision and cope like Facebook has.

The dark horse COULD be Skype. But MS is so paralyzed with internal empire building and civil wars that it seems unlikely that they will ever get their act together enough to unite their Skype users, XBox Live users, and all their various other network property users into a single social network — heck they can’t even get their act together on a single branding strategy for all these properties.

Apple is the other dark horse. They have the single userID sorted out, and have access to part of the social graph through iChat and FaceTime. What’s not clear is if they are even much interested in this space — they tend to be very focussed and to ignore areas where they don’t have any obvious advantage.)

On the investor side, the issue is not an assumption that Facebook WILL make money, it’s an assumption that Facebook MIGHT be the next Google. This sort of bet is likely dumb for an individual investor, but makes sense as part of a broad portfolio.

On the money-making side, Facebook has done a pretty good job so far of continually seeing itself not as “your personal web page” or “your personal web page + email replacement” or “your personal web page + email replacement + photo-sharing”. They keep expanding their ambitions — basically anything that involves your interaction with other human beings they see as part of their remit. It seems awfully foolish to assume that this is not something monetizable (and not only through ads). Throughout history people have been willing to pay good money to communicate. Facebook today extends that trend in ever more abstract ways — look at their being really the first federated ID system to take off on the internet.

How could they make more money? Some obvious examples

- get into the same sort of business as Skype — offer voice and phone calls and charge for extra features

- get into the same business as Dropbox — provide the basic photo/video sharing they have now, but charge money for more than a certain amount of storage

- get into the same business as Pandora/Netflix — provide ways to share music and video between friends and charge for the experience. Eg — synchronized movie viewing — we all see the movie together in sync, but on widely separated screens, there’s a backchannel (text or voice chat for us to comment and make snyde remarks), when one of us pauses for a bathroom break, the movie pauses for everyone.

- get into the same business as Amazon Prime — offer an annual membership fee which provides all the above benefits and continually adds more.

To assume that Facebook HAS to make money by serving up more and more obtrusive ads (with the inevitable result that they will drive users away) is really limited thinking.

Furthermore, I’ve advertised a lot on Facebook and I can tell you, firsthand, I have no idea how he’s going to pull even CLOSE to what Google does. There are many reasons for this (some which I won’t state publicly but I encourage you to try advertising) but I’ll state one iron-clad observation:

I own a small business on the side. I have a VERY successful Facebook page. If I advertised on it at all, I mean in any overt way, it would die. It’s all about providing a social area for people, NOT to directly advertise to them. That’s why it’s so successful. I know no one clicks on the ads and that they hate them. If there were more it would kill off the page, and I’d start looking for another venue. I’m sure I’m not alone. Remember this observation by a close friend of mine: Having a Facebook business page (or even your own) is like throwing a cocktail party. People come by, talk for a while, comment, then they move to the next small party. Anything interfering with this will kill the experience. Unless Zuck knows something he’s not saying I don’t think he knows a way around this. In fact, I’m going to say there IS no way around this. So the paradox here is any attempt to monetize the user experience will take away value. And if there were any charges for the site, Google would never charge and clean house and so would the next company to produce a site. So in the end, what justifies the valuation or an “investment”?

“We expect that substantially all of the net proceeds Zuckerberg will receive upon such sale will be used to satisfy taxes that he will incur upon his exercise of an outstanding stock option to purchase 120,000,000 shares”

Notice that it says “to purchase”. That $5B in gains isn’t a $5B liquidation; it’s a $5B exercise, creating a $1.7B tax liability. Zuckerberg is liquidating a small amount of his Facebook stock so that he can buy even more of it. That doesn’t sound like someone who is “playing [buyers] for suckers” to me.

I also think you’re reading too much into VCs cashing out at IPO. That’s reasonable for them to do even if they think Facebook will continue to succeed. VC funds are also not in the business of public stock markets – they want to invest in smaller companies with greater growth potential. It’s also worth noting that most funds operate on 10 year schedules, so it might be time for the early guys to pay back their investors.

well, maybe originally that might have been the case, but given that Zuckerberg and some large investors are selling huge stakes, that’s not true any more. They don’t have to sell all those shares, but they’re not holding on to them. FB is going public because some large shareholders want to cash in.