Do you remember the first dotcom boom?
If youd bought shares in those high-flying companies that were part of the alleged new economy and were burned when they crashed, youll surely never forget it. The real problem back then was that everyone could see the power of the internet, but few had any idea how to make it pay.
But wind forward more than a decade, and Facebook (NASDAQ: FB.US) seems to be doing it right and conquering the world as a result.
Not that its all been plain sailing. After an IPO in 2012 at $38 per share, which priced the social media company at more than the value of Amazonand Cisco, the share price crashed by 50%. But it steadied a little towards the end of that year, and since mid-2013 its been storming ahead. At $80 per share today, initial investors have more than doubled their money.
Facebooks big secret
Back in the year 2000 the secret was supposed to be advertising, too, but internet usage was much lower then and online advertising was really very crude just doing it exactly the same way you would in newspapers and on billboards, and hoping that one in ten thousand people might notice, just didnt bring in the riches its proponents had promised.
Many ways of targeting advertising have been tried that involve tracking what people are buying or thinking of buying, but there have been some serious backlashes against various snooping techniques.
But then youve got Facebook and its 1.32 billion regular users (as of June 2014), regularly telling everyone wholl listen about what theyre buying now, what fashion trends theyre following, what theyre going to have for lunch, and so on
Lets face it, very few people are actually interested in any individuals self-obsessed drivel other than similarly-minded friends. And advertisers. Oh yes, advertisers!
Facebook is by far the biggest and best-targeted advertising mailing list that has ever been put together. I fancy a burger/stinky tofu/surstrmming for lunch and bingo ads from your local takeaways right in your face, and without anyone having to do any snooping on you.
And theres nearly 20% of the entire population of the planet doing it already!
Where will it end?
The future? Its very hard to put valuations on all of this right now, but the potential for very high-quality targeted advertising (including mobile advertising, which is fertile new ground) must be enormous.
Facebook has certainly propelled many an investor to great wealth, but is it one to buy now for the next few decades?
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Alan Oscroft has no position in any shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
