The Post-Password Internet
J.B. is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
One thing about contemporary life that is absolutely annoying is the log-in screen. Every digital service has one in order to protect its users’ privacy and information. But, it is almost impossible to keep track of so many usernames, not to mention the increasingly complicated passwords and security questions. Recently, there has been a spate of articles about a concept product called “One Ring” that employees at Google have outlined. The idea is very basic. It would allow users to be identified by a piece of hardware that slides into a USB port, thus making it extremely easy to authenticate a user’s identity. The excitement around this story, given the product does not even exist, is nothing short of remarkable. “One Ring” serves as an excellent example of technology’s bright economic future. As a long-term investor, I would have no fear buying and holding Google (NASDAQ: GOOG), Facebook (NASDAQ: FB), Apple, and Microsoft. But hasn’t Facebook already created a single-password internet with Facebook Connect?
All of these articles about “One Ring” seem to be more about Google vs. Facebook than about bringing science fiction into everyday existence. However, just as Google and Apple have not fully displaced Microsoft, Facebook will never displace Google. Each of these companies serves a distinct purpose that seems to be set in stone for the time being. Unlike other security features (a piece of hardware or a laptop fingerprint reader), which make it more difficult to access your information, Facebook Connect allows users to seamlessly log-in to different services. So, if I go to my Goodreads account, and I am signed into Facebook, then Goodreads authenticates my identity, and I have immediate access to my online bookshelf. Facebook’s greatest feature is that it has humanized the internet on a global scale, placing a human layer on top of the entire web. Although not as secure as “One Ring,” like it or not, a Facebook profile already serves as one’s online identity.
But Can Facebook Make Money?
This question has two answers. The first, nobody knows if Facebook can adequately monetize what they already have, which is over one billion monthly active users. The second answer is that it would be very easy to grow revenue at a quick pace. As with any business, there are several pluses and minuses for the foreseeable future. First, the pluses. Facebook will continue to roll out new products that enhance the Facebook experience, whether it is acquiring Instagram or unveiling Social Graph Search. Facebook is one of the top drivers of web traffic. Facebook will eventually be added to the S&P 500. Facebook is already in the Nasdaq 100. Money has been flowing into Facebook from Apple. Facebook as a necessary utility in the lives of everyday people has been grossly underestimated by analysts. And finally, Facebook, according to a recent Forbes article, has a solid PEG (Price/ Earnings to Growth) ratio, which means that it may not be overpriced if it continues to quickly grow on the earnings front. Now, the minuses. Mark Zuckerberg, the CEO, is singularly obsessed by the social aspects of Facebook. He is missing the big picture, the fact that he needs to create an isolated ecosystem like Apple and Google have achieved. This is clearly seen in Zuckerberg’s decision to partner with music services, most notably Spotify, instead of offering a Facebook music service to rival iTunes or Google Play. The concerns over privacy will never go away. Some people are naturally more private than others, and a generational shift in user demographics will not change this fact. And finally, the last negative is user retention. People could easily use a different service.
The Bottom Line
If by long-term we mean ten to fifteen years, then it would be foolish to overlook Facebook or Google or Apple or Microsoft. Yes, Microsoft’s stock price has not budged in the past ten years. But any of these names will directly benefit from new technological developments, from products and ideas that have not even been imagined yet. Or even products that we will be using in the not-so-distant future, like wearable computers.
jbinvests owns shares of Facebook and Microsoft and recommends Apple and Google. The Motley Fool recommends Facebook. The Motley Fool owns shares of Facebook. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!