Day: November 19, 2015

As I sifted through section 106’s blogs, a particular post caught my eye. Written by Jolena Sun, the post discussed the notion of ‘organic reach’ within Facebook’s online user interface.

Organic Reach, by definition, is the total number of unique users that are shown a Facebook post through unpaid distribution. Conversely, ‘Paid Reach’ is the total number of unique users a post is exposed to as a result of paid advertising.

Recently, in an obvious monetization effort, Facebook has limited the organic reach a particular post can attain. Now, a ‘pay-to-play model’ has been instituted in which businesses must increase their marketing spend in order to ensure their posts effectively reach their target audience — that is, their likers.

While this has raised furor amongst small businesses sounding claims of unfairness, it is equally important to consider how Facebook’s perpetual need to appease Wall Street factors into their business decisions.

The inevitable curse of being a market darling is the need to satisfy Wall Street’s hunger for quarterly growth and progressive monetization figures. Every quarter Facebook’s financials are minutely scrutinized with an overly emphasized focus on short-run results. Often, this can be done at the expense of the company’s long-run vision. With mounting pressure from analysts and investors alike, Facebook is forced to protect its stock and be innovative in spurring new revenue streams.

As the business model canvas illustrates, revenue streams are vital for the health of any business. And although I can resonate with the plight of small business owners who are stacked against the mass marketing budgets of corporate giants, I feel Facebook is not culpable of any wrongdoing. In my opinion, Facebook has been one of the greatest boons small businesses have seen over the last decade. With cerebral algorithms and global reach, Facebook offers an unprecedented marketing platform. In fact, as Jolena contends, I would also argue that a higher proportion of ‘Paid Reach’ posts reduces the mass information dump that is present on Facebook newsfeeds. As a result, the probability of the target audience actually seeing relevant posts increases.

Segueing to the value proposition canvas, does this not address a major pain that businesses have? That is, whether their posts are effectively reaching their end-user?

Without the guarantee of effectiveness, Facebook’s value proposition languishes. Therefore, it is my opinion, that the move to limit organic reach was ideal both for Facebook, and its users.

I’ve always been interested in finance. And I guess you can say having watched Michael Douglas spin off Gordon Gekko in Wall Street 4278232922335651248468 times may have augmented that interest. When I arrived at Sauder, I joined a group of first-year students and we signed up for the National Investment Banking Competition (NIBC). As I skimmed through the case however, I quickly felt way in over my head. The entire document was inundated with seemingly complex financial models, and plenty of acronyms: DCF, WACC, CAPEX, EBIDTA — all of which looked completely foreign.

Investopedia helped to a certain extent. But it was the first finance-related class of COMM101 that really crystallized what the underlying principle of finance was. In essence, it can be reduced down to the simple concept of Present Value.

I came to understand that the foreign looking models in our NIBC case simply contained an amalgamation of financial, economical, and sociological metrics in the form of a discount rate. A rate that was derived from blended assumptions of a business’s future cash flows. In turn, this metric was being used to evaluate the business’s Net Present Value.

Recently, as I was flipping through news articles, a particular post piqued my attention. Suncor was making a hostile bid for Canadian Oil Sands (COS). To summarize, a hostile bid is one in which Company A circumvents the board of Company B and proposes a purchase agreement directly to the shareholders of Company B.

I felt this article adequately illustrates the significant role valuation plays in the business world. While Suncor maintains the offer they presented COS was fair value, COS argues that it grossly undervalues their business. So who’s right? The answer is relative to perceived present value. Suncor claims certain COS assets are under-performing and therefore do not warrant such a hefty price tag. In addition, citing the recent rout in oil prices, Suncor contends that certain COS assets are encumbered by high operating costs are not as valuable. They further claiming that although once viable, specific COS production sites now face danger of operating below break-even figures. Naturally, COS executives roared back stating that Suncor is exploiting the current status of the oil price, and has advised shareholders to swiftly reject the offer.

Still, I’m having a difficult time discerning who’s right. Is Suncor’s offer just the result of astute bankers skillfully taking advantage of COS’s weak balance sheet and uncertain financial position? Or does the offer accurately reflect COS’s value? What I do know, however, is that the world of M&A seems exciting, and I can definitely see myself within the scope of investment banking sometime in the future.

For now at least, it definitely looks like my specialization at Sauder is going to be Finance.

Information was sourced from this article.