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I hate to leap in with what seems like an ad-hominem attack on the 37 signals, but their utter and complete misunderstanding of all the basics of business is st

by spolsky 16y ago

I hate to leap in with what seems like an ad-hominem attack on the 37 signals, but their utter and complete misunderstanding of all the basics of business is starting to grate on me, and I'm wondering if it has anything to do with Chicago. Is the problem that they're sitting there in a city without any other Internet industry, stewing in their own witty ideas, listening only to the adoring comments they get from the groupies? How else could you explain just how far they seem to have drifted away from basic reality? First of all, David: The word is VALUATION, not evaluation. KTHX. Secondly, EVERY SINGLE COMPANY IN THE WORLD that has shares that trade is valued by taking the last share traded and multiplying by the number of shares outstanding. It's just the DEFINITION of valuation. It's TAUTOLOGICAL. The whole section "Minority investment evaluations aren’t real" is so economically bizarre and incorrect that I don't even know where to start. It's like you wrote a blog post arguing that it is incorrect to refer to a 5' tall boy as 5' tall because he's often sitting down. Every single day every single public company in the world is valued by the last share traded, usually for a tiny fraction of the company. Finally, to the main point. Facebook has certainly figured out how to make money off of 500,000,000 users. And as they optimize, they will make a lot more money. When they figure out how to make another DIME off of every user, they will instantly be making another $50,000,000 a year... in pure profit. How much profit will 37signals make if you figure out how to make another dime off of every customer? Eh David? Facebook works on the theory that when you have a lot of people, you don't have to make as much per person, because the amount of money you make is the number of customers times the amount of money you make off of each one. Again, that pesky multiplication. It's weird, it's like in Chicago they don't have multiplication or something.

BenS 16y ago
There is a relevant difference between valuations derived from secondary markets and public markets. Investors in secondary markets rarely have clear understanding of real financials or the capital structure of the company. This is a good writeup: http://www.homethinking.com/brontemedia/2010/09/17/secondary-suckers/ http://www.homethinking.com/brontemedia/2010/09/17/secondary... Also, Chicago has lots of smart people, and I agree with you that FB is well positioned to make lots of money.
_delirium 16y ago
I agree mostly, but it is true that in private equity, it's not always taken for granted that you can take a small stake's buy-in price and multiply it out to get a valuation. It depends on why that investor bought in, what the prospects for similar investors are, etc. It's taken with much bigger grains of salt than the standard (share price * shares outstanding) valuation for public companies is, anyway.
seldo 16y ago
A dime per user is nice and all, but they need to make 20x that for a billion dollars in revenue. That's still only $2 per user, but a lot harder.
- spolsky 16y ago
  They're almost certainly making $2 per user. Another dime is gonna be easy.
  - bhickey 16y ago
    First of all, Joel, it's THEY'RE not THERE. ;)
    - shadowmatter 16y ago
      Hey, lay off man! If Chicago doesn't have to teach multiplication, New York doesn't have to teach grammar, alright?
    - blusie 16y ago
      Read the original post, Joel didn't make that mistake.
      - lrm242 16y ago
        lol, he edited it.
  - lovskogen 16y ago
    Haven't got a dime from me, and they don't have an idea on how to.
    - moe 16y ago
      Also a dime per user/year is more than it seems when you can only collect it through indirect means (ads, charging other companies for using your platform). Remember their ~500mio user figure also includes the overwhelming portion of users who generate no more than a handful of page impressions per month. It's not like facebook could invent a yearly membership fee or start selling t-shirts or such... Well, they could, but I doubt more than ~20% of their audience would actually pay.
tofumatt 16y ago
I'm not sure a company doing as well as 37s can be accused of having a "complete misunderstanding of all the basics of business".
mrtron 16y ago
Given fb's current position - would it not be incredibly stupid to NOT do everything possible to continue their growth and try to become more widespread as a necessary layer of the internet? Assume they want to continue growing. Growing both the number of total users and the number of places they grab the users' attention (mobile is the next natural play). Of course they would continue raising money and not worry about profit margins right now as they are still driving money back into the company's growth. There are two factors that influence your 'multiplier theory' given their advertising model. Number of users and the amount of attention you have from those users. They still have a lot of potential upward growth in both areas. If facebook made a billionish dollars this year on ad revenue - they could double it with twice as many users. Double it again with twice as much user attention from being a core part of the mobile web. They are still growing their ad platform, so that is another multiplier.
- elblanco 16y ago
  Of course doubling their user base twice is something like 30% of the human species. I'm not sure that's realistic.
  - deleted 16y ago
    [deleted]
danieldon 16y ago
Is the problem that they're sitting there in a city without any other Internet industry orbitz, groupon, careerbuilder, peapod, everyblock, skinnycorp, grubhub, the onion, ars technica, to name a few
- flyosity 16y ago
  And Google since they bought FeedBurner a few years ago.
earle 16y ago
Last I checked one of the most profitable "internet" businesses (Groupon) in the last decade is in, and founded in, Chicago.
cynicalkane 16y ago
It should be immediately obvious that they're comparing intrinsic value vs market valuation, so no, it's not tautological at all. Everyone who invests should know that market value does not necessarily predict intrinsic value, and it becomes more problematic when there's illiquidity, and when only a small fraction of the company is being bought and sold. These are basics, going back to Ben Graham's famous book on value investing, and probably much further back than that. Even if liquidity and size didn't matter, it's still a basic error to go by last share traded and claim that that represents the actual value of the company.
- kj12345 16y ago
  Exactly. While the technical sense of valuation might be tautological, it's also nowhere near the average person's definition of economic "value" or "worth". A good test in the every-day sense of those words might be if company X were given 3 months to sell off everything and end up with a stack of cash, how much would they have? Apple could stand a chance of getting reasonably near their valuation whereas I'd be shocked if Facebook could.
corywilkerson 16y ago
The Chicago dig seems really, really unnecessary.
- gamache 16y ago
  It's as valid as when people refer to the Valley as one big techie circle-jerk. Or as the most fertile technological environment in the world. Location, location, location.
sbaqai 16y ago
The present valuation isn't as important as intrinsic value if you're talking about the long term. Of course the valuation is a multiple of its trading price. With that definition, its worth whatever people are trading shares think its worth. But that's only 3% of the shares. But what I think the 37signals post is addressing is how directly tied this valuation is (or isn't) to the company's intrinsic value. price-to-earnings, a guess at its margins, durable competitive advantage etc etc. In that sense, is facebook truely worth $33B? That's a different question than what's its current valuation. Its subjective, to be sure, but its still fundamentally different. Its a private company. I doubt many outside the company know its financials. Information scarcity leads to pricing inefficiency. For all we know, speculators might be driving up the price to cash out sooner. Another point I mentioned before: Everyone is incentivised to see the valuations go higher. The VC's, employees with shares, the founding team, etc. They can cherry pick talent from the competition with such valuations. Since I don't think you can short SecondMarket stock, there's no way to bring negative information into the market to keep prices rational. To your last point, facebook has certainly figured out how to make money off its current users. But it has radically changed the underlying user-conventions to get there. It started out as a college-yearbook and photo storing site with no profit-motive. In order to become profitable, its iterated on that simple concept with such a pace that the majority of users have yet to catch on with how things have changed beyond photosharing and posting on friends walls. The majority of people have no idea what is being tracked. For them to squeeze out further revenue, it follows that more fundamental changes must take place to get there. Whats one thing that could absolutely destroy facebook? Overnight? If they started making public which users were viewing which profiles, and with what frequency. That could kill it pretty easily, I think. Of course, they would never do it, but I think if a terrible scandal or crime occurs, involving sensitive user data, and people are compromised in such a manner, that would be a problem for facebook.A billion dollar company shouldn't be so easy to kill.
dhh 16y ago
1. Thanks for the word correction, updated. 2. Publicly traded companies have instant liquidity on many more shares, which makes using "last share sold" an meaningful metric. 3. When only 3% of the money a company is supposedly worth has been moved around, it's a poor indicator of what the other 97% would go for. 4. They haven't figured out how to make much profit yet. And it's still questionable whether they will. MySpace supposedly also just needed to turn on the faucet, but apparently the water ran out before they got to it. 5. Oh, and New York smells. (take that!)
- danielnicollet 16y ago
  it's "a meanningful metric" not "an meaningful metric". Please spell people. This is not SMS!
  - dansingerman 16y ago
    I think it is always wrong to point out spelling mistakes, except in posts about spelling mistakes.
    - cromulent 16y ago
      Especially as many spelling mistakes are actually typos. Also, "meanningful" is an excellent example of Muphry's Law. http://en.wikipedia.org/wiki/Muphry%27s_law http://en.wikipedia.org/wiki/Muphry%27s_law
- spolsky 16y ago
  2. That's just not correct. Spend twenty minutes talking to anyone who trades in bonds or equity before you make assumptions about what liquidity you need to get a good price... it's not much. Facebook trades all the time on sharespost, certainly enough to be liquid and to reach a market price. Google itself only has a tiny fraction of the shares available to the public (10% if I remember correctly) and far less than 1% of the outstanding shares trade every day. That doesn't mean that the market doesn't find a market price. 3. Also not correct. When entire companies are bought and sold that had a previous market in the shares, the price for the entire company is usually a PREMIUM ON the the market valuation. "PREMIUM ON" means MORE THAN. Somewhere in Chicago, I understand that there is one market of some sort, I think they trade corn and pig bellies, surely SOMEONE there can explain it to you... 4. Also, just not true. They are very profitable and their profit is almost certainly growing at a rate that will make their valuation reasonable.
sachinag 16y ago
37signals != Chicago
- scorpion032 16y ago
  http://en.wikipedia.org/wiki/Synecdoche http://en.wikipedia.org/wiki/Synecdoche > "The city posted a sign," means that an employee of the local government (but not the geographic location or all of its residents) posted a sign
ryanwaggoner 16y ago
their utter and complete misunderstanding of all the basics of business is starting to grate on me Their linkbait really grates on me as well (though I happen to agree with this post's conclusion, if not the methods), but I think it's pretty unfair to say that they misunderstand all the basics of business. They seem to be doing pretty well for a shop their size. In fact, I'd say there's a good chance they're doing better than Fog Creek. Maybe misunderstanding the absolute perversion of what too often passes for "business basics" in Silicon Valley isn't such a bad thing.
- jonpaul 16y ago
  Considering their success, how do they misunderstand the basics of business?
  - ryanwaggoner 16y ago
    That's my point.
    - jonpaul 16y ago
      Haha... I just reread your comment. Sorry, I read it too fast the first time.
timr 16y ago
"Secondly, EVERY SINGLE COMPANY IN THE WORLD that has shares that trade is valued by taking the last share traded and multiplied by the number of shares outstanding. It's just the DEFINITION of valuation. It's TAUTOLOGICAL." Indeed. And Pets.com was worth $100 million on the day of its IPO. And tulip bulbs were worth more than a man's annual salary in 1637. And that house down the street was worth a million dollars last year. Someone paid for those, too. You don't have to have a different definition of "valuation" to see that a small sample of the most eager investors in the private market doesn't guarantee a reliable estimate of value.
- kwamenum86 16y ago
  Value is determined by what someone- anyone- will pay for something. And it makes sense if you think about it. The goal is to find out how much you can sell that something for and it is the exact same problem as figuring out how much someone will pay for that something. Company valuations are messier than tulip bulb valuations though. With tulip bulb valuations you are saying that since someone will pay x the bulb is valued at x. With company valuations you are saying that since someone will buy 1/n of the company for x then the company is worth n*x. This makes sense because people really want a piece of facebook and valuations do a great job of setting that price. But the price is also used to determine how much the entire company will go for, which is how the number is often thought of. As long as the valuation goes up and you have the opportunity to sell for a net gain then it is a good investment. DHH's thoughts here are important beacause they call attention to a valuation bubble. I think the main controversy lies in his creative use of words.
  - JabavuAdams 16y ago
    Value is determined by what someone- anyone- will pay for something. This is unexamined Econ 101 dogma. See the other posts on intrinsic value.
    - kwamenum86 16y ago
      I say this coming from a practical point of view though. If I can sell something today for at most 15 bucks, that is how much it is worth, no?
raheemm 16y ago
What does Chicago have to do with FB valuation? KTHX. DHH makes a good point though - what are FB's profits/profit projections? No one knows. Assuming its $200M, how the hell can FB be worth $33B? That's all...
- iampims 16y ago
  It could well be that "only" $200M in profits is the result of spending $$$ on R&D and product development (FB Questions, FB Places, FB Credits), which could lead to a massive amount of cash flowing in shortly. They've massively invested in infrastructure, which has certainly lowered profits. They could very well start benefiting from this as soon as next year. Without information, though, it's all speculation.
  - raheemm 16y ago
    Without information, though, it's all speculation Right - that's the point. The valuations are not based on actual profits or profit potentials but rather on speculation/hype, which means bubble, and when a bubble bursts, it ends up hurting the entire community. Obviously, startup valuation is not a science. BUT when valuations are based on wild projections (such as FB will be be more profitable than Google), then someone must call it out.
biznickman 16y ago
37signals is great at understanding the laws of small business, however arguing with those same laws doesn't always work when scale is involved. This would have been a valid argument 2 years ago if Facebook was trading at this valuation, however Facebook has a reasonable valuation given their rapid revenue growth. They may surpass $200 million this year and their user base is still about to double (yes, to beyond 1 billion users). They haven't even begun to open up the revenue faucet. 37signals should stick to providing advice to "lean startups" who want to build small businesses.
- lovskogen 16y ago
  What if there's not faucet to open?
  - tgriesser 16y ago
    There is a faucet to open, and a big one at that. The fact that they have gotten to the point where other companies are able to build majorly successful (Zynga) businesses based on their platform, and the fact that they have become ubiquitous with many business' marketing and online presence speaks for its self. The fact that the total amount of time spent online is greater for those on Facebook than Google (including Youtube) is also important. http://news.cnet.com/8301-1023_3-20016046-93.html http://news.cnet.com/8301-1023_3-20016046-93.html But what is more important is Facebook's pursuit of pushing the envelope and being willing to innovate and lead as the online landscape changes. The posts above which mentions that people were saying the same thing about MySpace having the user base and then not being able to monetize is like comparing apples to rotten tomatoes. MySpace was not a technology company, Facebook is. MySpace was primarily a media company with little to offer technologically (see: http://paulgraham.com/yahoo.html http://paulgraham.com/yahoo.html), Facebook is building a social web that has deep horizontal integration with the Social Graph Protocol, mobile communication, and is actively trying to optimize it's infrastructure for both scalability and user experience. Look as far back to their decision to go with AJAX and not base everything strictly on page loads (as MySpace did), or as recent as their open sourced internal projects... (I don't think MySpace ever worked on any HipHop PHP or Cassandra) Facebook is in it with the right mindset, to be the leader and game changer in the "social web," and with both the value and quantity of data they are constantly amassing I wouldn't be surprised to see them on par with Google in a few years. Also, as they grow they can continue to optimize and decrease costs on their end... I'd say they have both a big faucet to open and probably a few leaks they could plug as well, the combination of which makes for a large valuation to be expected. It's always easier to look at something we don't quite fully understand from the outside (not many people understood the true value of those little text ads on Google until later) and then make blanket assumptions on valuations based on other companies that were inflated but not even on the same playing field as the company being discussed.
latch 16y ago
I remember a documentary on Walmart where someone said they succeeded by realizing that a small percentage from a very large number is still a very large number.
- johnzabroski 16y ago
  Joe Walton wrote a book about it.
  - sp332 16y ago
    Maybe Sam Walton? http://en.wikipedia.org/wiki/Joe_Walton http://en.wikipedia.org/wiki/Joe_Walton http://en.wikipedia.org/wiki/Sam_Walton http://en.wikipedia.org/wiki/Sam_Walton
    - johnzabroski 16y ago
      Correct!
CallMeJeffrey 16y ago
I don't entirely disagree with your points here, but as someone who is from Chicago and spent many years helping to build a very successful Chicago-based business (Threadless), I take offense to the notion that David's misconceptions have something to do with Chicago. First of all, he's from Denmark – he just lives in Chicago. Secondly, ever heard of a little startup called Groupon? They're from Chicago and I'm assuming they have a few people there that excel at multiplication. The location of 37signals has nothing to do with it, and you're clouding an otherwise clear and well articulated set of points with the asinine notion of "no one outside the valley understand business".
weezer 16y ago
"The cynic knows the price of everything and the value of nothing." -- Oscar Wilde Disregarding the technical usage of the word valuation in investing, I see three ways of interpreting the terms in the argument here. The price of Facebook is 33B, simply extrapolating from the price of tiny percentages of Facebook. The value is related to the price people are willing to pay, but is actually unknown and only exists as a prediction of future cash flows. The worth is a more nebulous concept and related to how much Facebook improves the world. It seems like spolsky is talking about the price, and dhh is talking about the value, and making illusions to the worth.
m104 16y ago
Seriously, Joel, Facebook just needs to "optimize" a bit and they'll be more profitable? Really? With a valuation of $33 billion, Facebook needs to make a bit more than a dime or two extra from their users. They need a ton of real dollars from each and every user or (more likely) dozens or hundreds of dollars from some users and nothing from the rest. How are they going to do that, exactly? How will Facebook change its platform to convert its hundreds of millions of users, who signed up for a free party, into billions of dollars per year without spoiling the party? No one likes getting invited to a party with their friends only to find that the beer isn't free after 11:30, or worse, they've been tricked into attending an MLM meeting. If Facebook could convert eyeballs to dollars the way Google can, there was no reason not to do so when they had 50 million users, or 100 million, or 200 million... It hasn't been done, though, because it would spoil the party and stop that lovely flow of VC money. I am just gobsmacked that, within just a few years of the US housing market bubble popping and the financial empires getting caught with their pants down, you would continue to support the speculators' fantasy of pre-IPO tech valuations. These types of valuations aren't just irresponsible or insane, they're scams! The consumers have no money or credit left, so the easy money is going to come from gullible investors.
stretchwithme 16y ago
Perhaps it is more correct to say that the potential revenues from this thing don't justify the valuation. It wouldn't be the first company to be overvalued and the fact that many owners of this stock cannot sell is certainly relevant.
scottymac 16y ago
On behalf of Groupon.com Orbitz.com Feedburner.com CareerBuilder.com TicketsNow.com Peapod.com Apartments.com Restaurant.com ShopLocal.com Legacy.com GrubHub.com EveryBlock.com Apoolicious.com Threadless.com Newser.com Songza.com ViewPoints.com Timelines.com SitterCity.com BlockShopper.com CarePages.com SurePayroll.com OneWed.com ...and many other Chicago-based internet companies Fuck off.
- jkratz 16y ago
  You forgot cars.com, viewpoints.com, and navteq ;) Clearly no internet here. Oh...and no financial companies either (I wont start a list of the many)
indiejade 16y ago
Secondly, EVERY SINGLE COMPANY IN THE WORLD that has shares that trade is valued by taking the last share traded and multiplying by the number of shares outstanding. It's just the DEFINITION of valuation Facebook is not (yet) public, which is a massive factor relative to the calculation of its book valuation. Presumably, at least on the surface, all of this facebook hype of late would indicate that what used to be a closely-held entity is quickly becoming ripe for the IPO market. What the actual valuation is (or will be) cannot be determined until the free market goes to work on it. But then again, speculation, anticipation, and fear . . . these have all been attributed to major market fluctuations, crashes, overnight millionaires . . .
Jeema 16y ago
It's TAUTOLOGICAL. I think you are talking past one another. He's saying that he does not think that their valuation is merited. You are saying that his assertion makes no sense because valuation is, by it's nature, defined by the current trading price. You are I think technically correct, but the market isn't always perfect in judging the value of something, and I think he is saying that this is one of those cases. "The whole section "Minority investment evaluations aren’t real" is so economically bizarre and incorrect that I don't even know where to start." I don't think that's so bizarre to say. If there is huge demand for something and only a very very limited supply, then doesn't it stand to reason that price will go up more than it would have otherwise if there was more supply?
mta 16y ago
There are numerous methodologies for valuation. "last share traded" is by no means the ONLY method. Markets by definition are made up of actors who independently value commodities in various ways, none of which are definitively the only valuation method. Is that tautological enough for you? Perhaps a little more humble thoughtfulness, rather than indignant ignorance, would do you some good.
bernardmoon 16y ago
Sure, but I would hardly call secondary markets for startup shares a valid market or even try to compare it to public market. Come on, Joel! So you would agree with the valuation of Slide or Ning a few years ago? Maybe. Would you now? No. Valuation of private companies is not a science but an art. That's startup 101 stuff. Do you really call Sharepost a market most investors would call credible? Please.
jasonadamyoung 16y ago
Here's my issue after reading all of this. Who the hell cares? I love minutiae as much as anyone, but this is worse than arguing about text editors. This sounds like a bunch of privileged people arguing about something that that doesn't make a damn bit of difference to what's really needed in this world. I thought I was going to learn something. But now I just feel a little ashamed that I read any of it all.
markdascoli 16y ago
Actually Joel, your assertion that dhh simply needs to look up valuation in the dictionary is absurd. Valuation is not neatly defined. It's hugely subjective -- especially for private companies. >It's like you wrote a blog post arguing that it is >incorrect to refer to a 5' tall boy as 5' tall because >he's often sitting down. It's not like that at all. It's more like comparing a 5' tall boy with a 5' tall light pole and deciding that valuation is based on height alone. >It's weird, it's like in Chicago they don't have multiplication or something. Yeah, good point. md
vseloved 16y ago
The only correction is that in this phrase "Facebook works on the theory that when you have a lot of people, you don't have to make as much per person, because the amount of money you make is the number of customers times the amount of money you make off of each one" you confuse customers and users. Facebook users are not their customers. The customers are advertisers, and there ain't 500m of them. So, although their profit hugely depends on the number of users, it's not the only component in the formula.
- runako 16y ago
  Users who aren't spending (at the moment) are better termed "product" since their presence on the site is being sold to others.
deleted 16y ago
[deleted]
foljs 16y ago
"Is the problem that they're sitting there in a city without any other Internet industry, stewing in their own witty ideas, listening only to the adoring comments they get from the groupies?" As opposed to being located in a circle-jerk of similar minded companies and VCs, responsible for the first internet boom? "The whole section "Minority investment evaluations aren’t real" is so economically bizarre and incorrect that I don't even know where to start. It's like you wrote a blog post arguing that it is incorrect to refer to a 5' tall boy as 5' tall because he's often sitting down." If he's ALWAYS sitting down, then it's accurate to argue he's not really 5' tall ―not for any practical purpose, that is. But not only "minority valuations" are not real, but majority valuations are not real either. Valuations are based on guesses, feelings, estimations and some facts thrown in for good measure. A declaration of fact, they are not. Some time they are even complete BS. "Finally, to the main point. Facebook has certainly figured out how to make money off of 500,000,000 users. And as they optimize, they will make a lot more money. When they figure out how to make another DIME off of every user, they will instantly be making another $50,000,000 a year... in pure profit. How much profit will 37signals make if you figure out how to make another dime off of every customer? Eh David?" And how useful is David's products to customers, eh Joel? How possible it is that they jump ship en masse when something trendier comes along, compared to Facebook? That is, which business is based on a solid offering, and which on virtual smoke and manure? Yahoo could once milk 500,000,000 users too. Nowadays, not so much. "Facebook works on the theory that when you have a lot of people, you don't have to make as much per person, because the amount of money you make is the number of customers times the amount of money you make off of each one. Again, that pesky multiplication." Yes, many a business failure was based on that theory. It's the old, "we lose money on each product, but we'll make it up on volume" idea, adjusted as "we make a tiny fraction of money from each user, providing no real benefit or substance, and he can jump ship tomorrow like he did on several of our predecessors, from Frienster to MySpace, but we'll make it up on volume". "It's weird, it's like in Chicago they don't have multiplication or something." Most likely it's like NY has no manners... But the real question is, should someone even partially responsible for Visual Basic even be allowed to talk about tech?
HowieSPM 16y ago
Of course Facebook is not worth $33bil. Fact: The Facebook engagement numbers for users suck. The data is inflated. That all is fact BUT forget that. Apple shares cost $6 per dollar of revenue. At the same valuation Facebook is worth $9bil. Would you really pay $25 per dollar of Facebook revenue knowing in 2-3 years they could be the next Myspace? They sell nothing. They are actually the Seinfeld of Networks. No loyalty. Nothing preventing anyone from jumping ship. If you think I am wrong people invested way more in their Myspace experience...photos, blogs, video, tricked out pages etc. And then just left. Gone. Bye. See ya. Remember a sucker is born every min and Elevation Partners has been a sucker over and over in many investments. Would you spend $6 per dollar of Apple revenue or $25 for a dollar of Facebook? Case closed.
pitbear 16y ago
y so serious? -The last executed price times shares outstanding is market cap. Valuation is dcf or guideline; there's a big difference between capitalization and valuation. -Sharespost can not be considered liquid as all of its securities are governed purely by regulation D and are by definition on hard to borrow -Facebook will not continue its current exponential rate of revenue growth for the standard 5 year assumption DCF (jk, but maybe not) Its most avid core user base will graduate with their faggy liberal arts degrees, find out they can't earn for shit, advertising revenues will peak and decline, at which point Facebook will file a timely SEC S-1, followed by a record oversubscribed ipo mostly bought by parent(sponsors) of said faggy liberal arts graduates, then get basket shorted down to 50% of offering price. IB, instl. trading desks, and VC will already have gotten rich long before this; everyone else loses. Same deal with carbon/ECX emissions futures. -NY owns Chicago; Chicago is the guy on the merc floor shouting hundreds of open outcry bids while one trading desk at 200 west st. takes every bet against him using one single macro on Rediplus. (jk, respect to all veteran floor traders) -I'm sure everyone will decide their bets based on their own risk-reward/due diligence anyways. Nothing we say to each other will have a huge effect; in the end, the bids and offers we provide will do all the talking for us. That's why the market exists so let the games begin.

by spolsky 16y ago

BenS 16y ago

There is a relevant difference between valuations derived from secondary markets and public markets. Investors in secondary markets rarely have clear understanding of real financials or the capital structure of the company. This is a good writeup: http://www.homethinking.com/brontemedia/2010/09/17/secondary-suckers/ http://www.homethinking.com/brontemedia/2010/09/17/secondary... Also, Chicago has lots of smart people, and I agree with you that FB is well positioned to make lots of money.

_delirium 16y ago

I agree mostly, but it is true that in private equity, it's not always taken for granted that you can take a small stake's buy-in price and multiply it out to get a valuation. It depends on why that investor bought in, what the prospects for similar investors are, etc. It's taken with much bigger grains of salt than the standard (share price * shares outstanding) valuation for public companies is, anyway.

seldo 16y ago

A dime per user is nice and all, but they need to make 20x that for a billion dollars in revenue. That's still only $2 per user, but a lot harder.

spolsky 16y ago
They're almost certainly making $2 per user. Another dime is gonna be easy.
- bhickey 16y ago
  First of all, Joel, it's THEY'RE not THERE. ;)
  - shadowmatter 16y ago
    Hey, lay off man! If Chicago doesn't have to teach multiplication, New York doesn't have to teach grammar, alright?
  - blusie 16y ago
    Read the original post, Joel didn't make that mistake.
    - lrm242 16y ago
      lol, he edited it.
- lovskogen 16y ago
  Haven't got a dime from me, and they don't have an idea on how to.
  - moe 16y ago
    Also a dime per user/year is more than it seems when you can only collect it through indirect means (ads, charging other companies for using your platform). Remember their ~500mio user figure also includes the overwhelming portion of users who generate no more than a handful of page impressions per month. It's not like facebook could invent a yearly membership fee or start selling t-shirts or such... Well, they could, but I doubt more than ~20% of their audience would actually pay.

tofumatt 16y ago

I'm not sure a company doing as well as 37s can be accused of having a "complete misunderstanding of all the basics of business".

mrtron 16y ago

Given fb's current position - would it not be incredibly stupid to NOT do everything possible to continue their growth and try to become more widespread as a necessary layer of the internet? Assume they want to continue growing. Growing both the number of total users and the number of places they grab the users' attention (mobile is the next natural play). Of course they would continue raising money and not worry about profit margins right now as they are still driving money back into the company's growth. There are two factors that influence your 'multiplier theory' given their advertising model. Number of users and the amount of attention you have from those users. They still have a lot of potential upward growth in both areas. If facebook made a billionish dollars this year on ad revenue - they could double it with twice as many users. Double it again with twice as much user attention from being a core part of the mobile web. They are still growing their ad platform, so that is another multiplier.

elblanco 16y ago
Of course doubling their user base twice is something like 30% of the human species. I'm not sure that's realistic.
- deleted 16y ago
  [deleted]

danieldon 16y ago

Is the problem that they're sitting there in a city without any other Internet industry orbitz, groupon, careerbuilder, peapod, everyblock, skinnycorp, grubhub, the onion, ars technica, to name a few

flyosity 16y ago
And Google since they bought FeedBurner a few years ago.

earle 16y ago

Last I checked one of the most profitable "internet" businesses (Groupon) in the last decade is in, and founded in, Chicago.

cynicalkane 16y ago

It should be immediately obvious that they're comparing intrinsic value vs market valuation, so no, it's not tautological at all. Everyone who invests should know that market value does not necessarily predict intrinsic value, and it becomes more problematic when there's illiquidity, and when only a small fraction of the company is being bought and sold. These are basics, going back to Ben Graham's famous book on value investing, and probably much further back than that. Even if liquidity and size didn't matter, it's still a basic error to go by last share traded and claim that that represents the actual value of the company.

kj12345 16y ago
Exactly. While the technical sense of valuation might be tautological, it's also nowhere near the average person's definition of economic "value" or "worth". A good test in the every-day sense of those words might be if company X were given 3 months to sell off everything and end up with a stack of cash, how much would they have? Apple could stand a chance of getting reasonably near their valuation whereas I'd be shocked if Facebook could.

corywilkerson 16y ago

The Chicago dig seems really, really unnecessary.

gamache 16y ago
It's as valid as when people refer to the Valley as one big techie circle-jerk. Or as the most fertile technological environment in the world. Location, location, location.

sbaqai 16y ago

The present valuation isn't as important as intrinsic value if you're talking about the long term. Of course the valuation is a multiple of its trading price. With that definition, its worth whatever people are trading shares think its worth. But that's only 3% of the shares. But what I think the 37signals post is addressing is how directly tied this valuation is (or isn't) to the company's intrinsic value. price-to-earnings, a guess at its margins, durable competitive advantage etc etc. In that sense, is facebook truely worth $33B? That's a different question than what's its current valuation. Its subjective, to be sure, but its still fundamentally different. Its a private company. I doubt many outside the company know its financials. Information scarcity leads to pricing inefficiency. For all we know, speculators might be driving up the price to cash out sooner. Another point I mentioned before: Everyone is incentivised to see the valuations go higher. The VC's, employees with shares, the founding team, etc. They can cherry pick talent from the competition with such valuations. Since I don't think you can short SecondMarket stock, there's no way to bring negative information into the market to keep prices rational. To your last point, facebook has certainly figured out how to make money off its current users. But it has radically changed the underlying user-conventions to get there. It started out as a college-yearbook and photo storing site with no profit-motive. In order to become profitable, its iterated on that simple concept with such a pace that the majority of users have yet to catch on with how things have changed beyond photosharing and posting on friends walls. The majority of people have no idea what is being tracked. For them to squeeze out further revenue, it follows that more fundamental changes must take place to get there. Whats one thing that could absolutely destroy facebook? Overnight? If they started making public which users were viewing which profiles, and with what frequency. That could kill it pretty easily, I think. Of course, they would never do it, but I think if a terrible scandal or crime occurs, involving sensitive user data, and people are compromised in such a manner, that would be a problem for facebook.A billion dollar company shouldn't be so easy to kill.

dhh 16y ago

1. Thanks for the word correction, updated. 2. Publicly traded companies have instant liquidity on many more shares, which makes using "last share sold" an meaningful metric. 3. When only 3% of the money a company is supposedly worth has been moved around, it's a poor indicator of what the other 97% would go for. 4. They haven't figured out how to make much profit yet. And it's still questionable whether they will. MySpace supposedly also just needed to turn on the faucet, but apparently the water ran out before they got to it. 5. Oh, and New York smells. (take that!)

danielnicollet 16y ago
it's "a meanningful metric" not "an meaningful metric". Please spell people. This is not SMS!
- dansingerman 16y ago
  I think it is always wrong to point out spelling mistakes, except in posts about spelling mistakes.
  - cromulent 16y ago
    Especially as many spelling mistakes are actually typos. Also, "meanningful" is an excellent example of Muphry's Law. http://en.wikipedia.org/wiki/Muphry%27s_law http://en.wikipedia.org/wiki/Muphry%27s_law
spolsky 16y ago
2. That's just not correct. Spend twenty minutes talking to anyone who trades in bonds or equity before you make assumptions about what liquidity you need to get a good price... it's not much. Facebook trades all the time on sharespost, certainly enough to be liquid and to reach a market price. Google itself only has a tiny fraction of the shares available to the public (10% if I remember correctly) and far less than 1% of the outstanding shares trade every day. That doesn't mean that the market doesn't find a market price. 3. Also not correct. When entire companies are bought and sold that had a previous market in the shares, the price for the entire company is usually a PREMIUM ON the the market valuation. "PREMIUM ON" means MORE THAN. Somewhere in Chicago, I understand that there is one market of some sort, I think they trade corn and pig bellies, surely SOMEONE there can explain it to you... 4. Also, just not true. They are very profitable and their profit is almost certainly growing at a rate that will make their valuation reasonable.

sachinag 16y ago

37signals != Chicago

scorpion032 16y ago
http://en.wikipedia.org/wiki/Synecdoche http://en.wikipedia.org/wiki/Synecdoche > "The city posted a sign," means that an employee of the local government (but not the geographic location or all of its residents) posted a sign

ryanwaggoner 16y ago

their utter and complete misunderstanding of all the basics of business is starting to grate on me Their linkbait really grates on me as well (though I happen to agree with this post's conclusion, if not the methods), but I think it's pretty unfair to say that they misunderstand all the basics of business. They seem to be doing pretty well for a shop their size. In fact, I'd say there's a good chance they're doing better than Fog Creek. Maybe misunderstanding the absolute perversion of what too often passes for "business basics" in Silicon Valley isn't such a bad thing.

jonpaul 16y ago
Considering their success, how do they misunderstand the basics of business?
- ryanwaggoner 16y ago
  That's my point.
  - jonpaul 16y ago
    Haha... I just reread your comment. Sorry, I read it too fast the first time.

timr 16y ago

"Secondly, EVERY SINGLE COMPANY IN THE WORLD that has shares that trade is valued by taking the last share traded and multiplied by the number of shares outstanding. It's just the DEFINITION of valuation. It's TAUTOLOGICAL." Indeed. And Pets.com was worth $100 million on the day of its IPO. And tulip bulbs were worth more than a man's annual salary in 1637. And that house down the street was worth a million dollars last year. Someone paid for those, too. You don't have to have a different definition of "valuation" to see that a small sample of the most eager investors in the private market doesn't guarantee a reliable estimate of value.

kwamenum86 16y ago
Value is determined by what someone- anyone- will pay for something. And it makes sense if you think about it. The goal is to find out how much you can sell that something for and it is the exact same problem as figuring out how much someone will pay for that something. Company valuations are messier than tulip bulb valuations though. With tulip bulb valuations you are saying that since someone will pay x the bulb is valued at x. With company valuations you are saying that since someone will buy 1/n of the company for x then the company is worth n*x. This makes sense because people really want a piece of facebook and valuations do a great job of setting that price. But the price is also used to determine how much the entire company will go for, which is how the number is often thought of. As long as the valuation goes up and you have the opportunity to sell for a net gain then it is a good investment. DHH's thoughts here are important beacause they call attention to a valuation bubble. I think the main controversy lies in his creative use of words.
- JabavuAdams 16y ago
  Value is determined by what someone- anyone- will pay for something. This is unexamined Econ 101 dogma. See the other posts on intrinsic value.
  - kwamenum86 16y ago
    I say this coming from a practical point of view though. If I can sell something today for at most 15 bucks, that is how much it is worth, no?

raheemm 16y ago

What does Chicago have to do with FB valuation? KTHX. DHH makes a good point though - what are FB's profits/profit projections? No one knows. Assuming its $200M, how the hell can FB be worth $33B? That's all...

iampims 16y ago
It could well be that "only" $200M in profits is the result of spending $$$ on R&D and product development (FB Questions, FB Places, FB Credits), which could lead to a massive amount of cash flowing in shortly. They've massively invested in infrastructure, which has certainly lowered profits. They could very well start benefiting from this as soon as next year. Without information, though, it's all speculation.
- raheemm 16y ago
  Without information, though, it's all speculation Right - that's the point. The valuations are not based on actual profits or profit potentials but rather on speculation/hype, which means bubble, and when a bubble bursts, it ends up hurting the entire community. Obviously, startup valuation is not a science. BUT when valuations are based on wild projections (such as FB will be be more profitable than Google), then someone must call it out.

biznickman 16y ago

37signals is great at understanding the laws of small business, however arguing with those same laws doesn't always work when scale is involved. This would have been a valid argument 2 years ago if Facebook was trading at this valuation, however Facebook has a reasonable valuation given their rapid revenue growth. They may surpass $200 million this year and their user base is still about to double (yes, to beyond 1 billion users). They haven't even begun to open up the revenue faucet. 37signals should stick to providing advice to "lean startups" who want to build small businesses.

lovskogen 16y ago
What if there's not faucet to open?
- tgriesser 16y ago
  There is a faucet to open, and a big one at that. The fact that they have gotten to the point where other companies are able to build majorly successful (Zynga) businesses based on their platform, and the fact that they have become ubiquitous with many business' marketing and online presence speaks for its self. The fact that the total amount of time spent online is greater for those on Facebook than Google (including Youtube) is also important. http://news.cnet.com/8301-1023_3-20016046-93.html http://news.cnet.com/8301-1023_3-20016046-93.html But what is more important is Facebook's pursuit of pushing the envelope and being willing to innovate and lead as the online landscape changes. The posts above which mentions that people were saying the same thing about MySpace having the user base and then not being able to monetize is like comparing apples to rotten tomatoes. MySpace was not a technology company, Facebook is. MySpace was primarily a media company with little to offer technologically (see: http://paulgraham.com/yahoo.html http://paulgraham.com/yahoo.html), Facebook is building a social web that has deep horizontal integration with the Social Graph Protocol, mobile communication, and is actively trying to optimize it's infrastructure for both scalability and user experience. Look as far back to their decision to go with AJAX and not base everything strictly on page loads (as MySpace did), or as recent as their open sourced internal projects... (I don't think MySpace ever worked on any HipHop PHP or Cassandra) Facebook is in it with the right mindset, to be the leader and game changer in the "social web," and with both the value and quantity of data they are constantly amassing I wouldn't be surprised to see them on par with Google in a few years. Also, as they grow they can continue to optimize and decrease costs on their end... I'd say they have both a big faucet to open and probably a few leaks they could plug as well, the combination of which makes for a large valuation to be expected. It's always easier to look at something we don't quite fully understand from the outside (not many people understood the true value of those little text ads on Google until later) and then make blanket assumptions on valuations based on other companies that were inflated but not even on the same playing field as the company being discussed.

latch 16y ago

I remember a documentary on Walmart where someone said they succeeded by realizing that a small percentage from a very large number is still a very large number.

johnzabroski 16y ago
Joe Walton wrote a book about it.
- sp332 16y ago
  Maybe Sam Walton? http://en.wikipedia.org/wiki/Joe_Walton http://en.wikipedia.org/wiki/Joe_Walton http://en.wikipedia.org/wiki/Sam_Walton http://en.wikipedia.org/wiki/Sam_Walton
  - johnzabroski 16y ago
    Correct!

CallMeJeffrey 16y ago

I don't entirely disagree with your points here, but as someone who is from Chicago and spent many years helping to build a very successful Chicago-based business (Threadless), I take offense to the notion that David's misconceptions have something to do with Chicago. First of all, he's from Denmark – he just lives in Chicago. Secondly, ever heard of a little startup called Groupon? They're from Chicago and I'm assuming they have a few people there that excel at multiplication. The location of 37signals has nothing to do with it, and you're clouding an otherwise clear and well articulated set of points with the asinine notion of "no one outside the valley understand business".

weezer 16y ago

"The cynic knows the price of everything and the value of nothing." -- Oscar Wilde Disregarding the technical usage of the word valuation in investing, I see three ways of interpreting the terms in the argument here. The price of Facebook is 33B, simply extrapolating from the price of tiny percentages of Facebook. The value is related to the price people are willing to pay, but is actually unknown and only exists as a prediction of future cash flows. The worth is a more nebulous concept and related to how much Facebook improves the world. It seems like spolsky is talking about the price, and dhh is talking about the value, and making illusions to the worth.

m104 16y ago

Seriously, Joel, Facebook just needs to "optimize" a bit and they'll be more profitable? Really? With a valuation of $33 billion, Facebook needs to make a bit more than a dime or two extra from their users. They need a ton of real dollars from each and every user or (more likely) dozens or hundreds of dollars from some users and nothing from the rest. How are they going to do that, exactly? How will Facebook change its platform to convert its hundreds of millions of users, who signed up for a free party, into billions of dollars per year without spoiling the party? No one likes getting invited to a party with their friends only to find that the beer isn't free after 11:30, or worse, they've been tricked into attending an MLM meeting. If Facebook could convert eyeballs to dollars the way Google can, there was no reason not to do so when they had 50 million users, or 100 million, or 200 million... It hasn't been done, though, because it would spoil the party and stop that lovely flow of VC money. I am just gobsmacked that, within just a few years of the US housing market bubble popping and the financial empires getting caught with their pants down, you would continue to support the speculators' fantasy of pre-IPO tech valuations. These types of valuations aren't just irresponsible or insane, they're scams! The consumers have no money or credit left, so the easy money is going to come from gullible investors.

stretchwithme 16y ago

Perhaps it is more correct to say that the potential revenues from this thing don't justify the valuation. It wouldn't be the first company to be overvalued and the fact that many owners of this stock cannot sell is certainly relevant.

scottymac 16y ago

On behalf of Groupon.com Orbitz.com Feedburner.com CareerBuilder.com TicketsNow.com Peapod.com Apartments.com Restaurant.com ShopLocal.com Legacy.com GrubHub.com EveryBlock.com Apoolicious.com Threadless.com Newser.com Songza.com ViewPoints.com Timelines.com SitterCity.com BlockShopper.com CarePages.com SurePayroll.com OneWed.com ...and many other Chicago-based internet companies Fuck off.

jkratz 16y ago
You forgot cars.com, viewpoints.com, and navteq ;) Clearly no internet here. Oh...and no financial companies either (I wont start a list of the many)

indiejade 16y ago

Secondly, EVERY SINGLE COMPANY IN THE WORLD that has shares that trade is valued by taking the last share traded and multiplying by the number of shares outstanding. It's just the DEFINITION of valuation Facebook is not (yet) public, which is a massive factor relative to the calculation of its book valuation. Presumably, at least on the surface, all of this facebook hype of late would indicate that what used to be a closely-held entity is quickly becoming ripe for the IPO market. What the actual valuation is (or will be) cannot be determined until the free market goes to work on it. But then again, speculation, anticipation, and fear . . . these have all been attributed to major market fluctuations, crashes, overnight millionaires . . .

Jeema 16y ago

It's TAUTOLOGICAL. I think you are talking past one another. He's saying that he does not think that their valuation is merited. You are saying that his assertion makes no sense because valuation is, by it's nature, defined by the current trading price. You are I think technically correct, but the market isn't always perfect in judging the value of something, and I think he is saying that this is one of those cases. "The whole section "Minority investment evaluations aren’t real" is so economically bizarre and incorrect that I don't even know where to start." I don't think that's so bizarre to say. If there is huge demand for something and only a very very limited supply, then doesn't it stand to reason that price will go up more than it would have otherwise if there was more supply?

mta 16y ago

There are numerous methodologies for valuation. "last share traded" is by no means the ONLY method. Markets by definition are made up of actors who independently value commodities in various ways, none of which are definitively the only valuation method. Is that tautological enough for you? Perhaps a little more humble thoughtfulness, rather than indignant ignorance, would do you some good.

bernardmoon 16y ago

Sure, but I would hardly call secondary markets for startup shares a valid market or even try to compare it to public market. Come on, Joel! So you would agree with the valuation of Slide or Ning a few years ago? Maybe. Would you now? No. Valuation of private companies is not a science but an art. That's startup 101 stuff. Do you really call Sharepost a market most investors would call credible? Please.

jasonadamyoung 16y ago

Here's my issue after reading all of this. Who the hell cares? I love minutiae as much as anyone, but this is worse than arguing about text editors. This sounds like a bunch of privileged people arguing about something that that doesn't make a damn bit of difference to what's really needed in this world. I thought I was going to learn something. But now I just feel a little ashamed that I read any of it all.

markdascoli 16y ago

Actually Joel, your assertion that dhh simply needs to look up valuation in the dictionary is absurd. Valuation is not neatly defined. It's hugely subjective -- especially for private companies. >It's like you wrote a blog post arguing that it is >incorrect to refer to a 5' tall boy as 5' tall because >he's often sitting down. It's not like that at all. It's more like comparing a 5' tall boy with a 5' tall light pole and deciding that valuation is based on height alone. >It's weird, it's like in Chicago they don't have multiplication or something. Yeah, good point. md

vseloved 16y ago

The only correction is that in this phrase "Facebook works on the theory that when you have a lot of people, you don't have to make as much per person, because the amount of money you make is the number of customers times the amount of money you make off of each one" you confuse customers and users. Facebook users are not their customers. The customers are advertisers, and there ain't 500m of them. So, although their profit hugely depends on the number of users, it's not the only component in the formula.

runako 16y ago
Users who aren't spending (at the moment) are better termed "product" since their presence on the site is being sold to others.

deleted 16y ago

[deleted]

foljs 16y ago

"Is the problem that they're sitting there in a city without any other Internet industry, stewing in their own witty ideas, listening only to the adoring comments they get from the groupies?" As opposed to being located in a circle-jerk of similar minded companies and VCs, responsible for the first internet boom? "The whole section "Minority investment evaluations aren’t real" is so economically bizarre and incorrect that I don't even know where to start. It's like you wrote a blog post arguing that it is incorrect to refer to a 5' tall boy as 5' tall because he's often sitting down." If he's ALWAYS sitting down, then it's accurate to argue he's not really 5' tall ―not for any practical purpose, that is. But not only "minority valuations" are not real, but majority valuations are not real either. Valuations are based on guesses, feelings, estimations and some facts thrown in for good measure. A declaration of fact, they are not. Some time they are even complete BS. "Finally, to the main point. Facebook has certainly figured out how to make money off of 500,000,000 users. And as they optimize, they will make a lot more money. When they figure out how to make another DIME off of every user, they will instantly be making another $50,000,000 a year... in pure profit. How much profit will 37signals make if you figure out how to make another dime off of every customer? Eh David?" And how useful is David's products to customers, eh Joel? How possible it is that they jump ship en masse when something trendier comes along, compared to Facebook? That is, which business is based on a solid offering, and which on virtual smoke and manure? Yahoo could once milk 500,000,000 users too. Nowadays, not so much. "Facebook works on the theory that when you have a lot of people, you don't have to make as much per person, because the amount of money you make is the number of customers times the amount of money you make off of each one. Again, that pesky multiplication." Yes, many a business failure was based on that theory. It's the old, "we lose money on each product, but we'll make it up on volume" idea, adjusted as "we make a tiny fraction of money from each user, providing no real benefit or substance, and he can jump ship tomorrow like he did on several of our predecessors, from Frienster to MySpace, but we'll make it up on volume". "It's weird, it's like in Chicago they don't have multiplication or something." Most likely it's like NY has no manners... But the real question is, should someone even partially responsible for Visual Basic even be allowed to talk about tech?

HowieSPM 16y ago

Of course Facebook is not worth $33bil. Fact: The Facebook engagement numbers for users suck. The data is inflated. That all is fact BUT forget that. Apple shares cost $6 per dollar of revenue. At the same valuation Facebook is worth $9bil. Would you really pay $25 per dollar of Facebook revenue knowing in 2-3 years they could be the next Myspace? They sell nothing. They are actually the Seinfeld of Networks. No loyalty. Nothing preventing anyone from jumping ship. If you think I am wrong people invested way more in their Myspace experience...photos, blogs, video, tricked out pages etc. And then just left. Gone. Bye. See ya. Remember a sucker is born every min and Elevation Partners has been a sucker over and over in many investments. Would you spend $6 per dollar of Apple revenue or $25 for a dollar of Facebook? Case closed.

pitbear 16y ago

y so serious? -The last executed price times shares outstanding is market cap. Valuation is dcf or guideline; there's a big difference between capitalization and valuation. -Sharespost can not be considered liquid as all of its securities are governed purely by regulation D and are by definition on hard to borrow -Facebook will not continue its current exponential rate of revenue growth for the standard 5 year assumption DCF (jk, but maybe not) Its most avid core user base will graduate with their faggy liberal arts degrees, find out they can't earn for shit, advertising revenues will peak and decline, at which point Facebook will file a timely SEC S-1, followed by a record oversubscribed ipo mostly bought by parent(sponsors) of said faggy liberal arts graduates, then get basket shorted down to 50% of offering price. IB, instl. trading desks, and VC will already have gotten rich long before this; everyone else loses. Same deal with carbon/ECX emissions futures. -NY owns Chicago; Chicago is the guy on the merc floor shouting hundreds of open outcry bids while one trading desk at 200 west st. takes every bet against him using one single macro on Rediplus. (jk, respect to all veteran floor traders) -I'm sure everyone will decide their bets based on their own risk-reward/due diligence anyways. Nothing we say to each other will have a huge effect; in the end, the bids and offers we provide will do all the talking for us. That's why the market exists so let the games begin.