The first major wave of the Internet, staged in the 1990s, was centered around portals and e-commerce, spawning the likes of Priceline.com (NASDAQ:PCLN), Amazon (NASDAQ:AMZN) and Google (NASDAQ:GOOG).
This eventually gave way to another technological era — social networking — which was ushered in around 2004 and featured pioneers like Facebook (NASDAQ:FB), LinkedIn (NYSE:LNKD) and Zynga (NASDAQ:ZNGA).
However, Facebook’s disappointing initial public offering looks like a sign that this latest era in technology has peaked.
To get some perspective, let’s rewind the clock back to Aug. 9, 1995.
At the time, the Netscape IPO sparked the Internet revolution — and showed it was possible for a money-losing company to come public. Netscape offered its shares at $28, which more than doubled to $58.25 on the first day of trading, good for a market value of $2.9 billion. This from a company that was founded only about 18 months prior.
The deal was an absolute game-changer.
The Facebook IPO was much different. CEO and co-founder Mark Zuckerberg waited a glacial eight years until he took his company public, instead choosing to raise about $2 billion in private capital to keep the gears turning. Part of this money went to fund the company’s operations, while the rest went to cashing out employees and investors; in fact, Facebook stock had been trading in secondary markets for several years ahead of its IPO.
So, when Facebook finally came public last Friday, investors really weren’t even participating in a traditional IPO. Facebook’s business, while evolving, is much more mature than a traditional IPO, and much of the easy money already had been made.
If anything, the deal was a sign of the peak of the social revolution — which might not even be as big as the first Internet era. Despite having more than 900 million monthly users, Facebook has only been able to post $4 billion in revenues for the past year. Google, on the other hand, has about $40 billion. Social platforms just are not ideal for monetization. As it stands today, most people go to Facebook to hang out and keep up with friends; it’s not a shopping experience.
But if social’s sun is setting, what’s the next technological revolution on the horizon?
Well, the buzz says it will be mobile. But even if that’s the case, it might not necessarily lend itself to the emergence of another Facebook. Mobile is a unique business, as there already are several major winners in the space, such as Apple (NASDAQ:AAPL) and Google — which essentially are gatekeepers, considering they control the platforms.
Think of these companies as tollbooths. Apple, for example, gets 30% of all purchase transactions. Between that and its innovative gadgets, is it any wonder that Apple is the most valuable company in the world?
So far, other breakout companies like Instagram have shown little monetization, and even established social players like Facebook make only small sums from mobile.
More likely than not, the next revolution will be something beyond Internet contraptions. This is the thinking of, among others, Peter Thiel — the first angel investor in Facebook, and one who made billions from the investment.
Thiel is skeptical about mobile because of the aforementioned gatekeeper issue. Instead, Thiel has been investing in categories like bioinformatics, biotechnology, advanced machines, artificial intelligence and even nutrition. These categories have been mostly neglected, but hold out much promise. Of course, when Thiel invested in Facebook in 2005, many thought social networking was a fad, too.
Investors might be able to find future gains in Facebook and other social stocks, but don’t expect huge windfalls. The big money likely will come from technologies with less spotlight today — but that ultimately could become much more profitable than social networking.
Tom Taulli runs the InvestorPlace blog IPO Playbook, a site dedicated to the hottest news and rumors about initial public offerings. He also is the author of “The Complete M&A Handbook”, “All About Short Selling” and “All About Commodities.” Follow him on Twitter at @ttaulli or reach him via email. As of this writing, he did not own a position in any of the aforementioned securities.
