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The Nation's Pulse
Facebook: Where a Minnow Can Look Like a Whale
What makes its IPO worth — is it worth — $100 billion?
An auditor visiting Earth from another planet might be gobsmacked at what our society considers to have economic value. Indeed, the nearly $100 billion envisioned IPO of Facebook could capture the attention of an inquisitive stranger from a distant galaxy, causing him to wonder not only about capital formation, but about social values. With that valuation, the upstart social media enterprise would suddenly be about equal to Abbott Laboratories or Citigroup in value, with only 26 of the Fortune 500 having greater market capitalization.
The need to communicate is as old as homo sapiens. Since the Stone Age, our species has needed to reach out and touch others. Hirsute, carnivorous prehistoric Man may have felt loneliness in his own way, hoping to relate socially in caves and at campfires. Much later and over the centuries, inventions such as the printing press, telegraph, and telephone permitted more widespread social interaction. And now, at the outset of the 21st century, the art of communication is made even easier.
The expected valuation of Facebook shows how powerful is the human desire to liaise and interface. Once the hype quiets down, it may be worthwhile to ponder why a huge array of software, servers, and electrons traveling at the speed of light could be worth so much, while other American companies in basic industries are imperiled by competition and loss of market share. Why is it that smart, young geeks can suddenly become so rich, while those smart, tried and true folks who work hard and retire to bed early struggle for economic stability and fulfillment?
A principal value proposition of Facebook is to allow the shy to assert themselves. A socially awkward person can blossom into a digital socialite, with a few clicks of a mouse. Where else can a minnow look like a whale, a solitary extremist look like the Chinese Army, and a clumsy person look like a tango instructor? Indeed, phalanxes of the social hermits of yesterday now sit mightily in their comfortable high tech enclaves, the bland, light gray cubicles that Dilbert championed. Some even manage to eat several meals a day there. Facebook is their triumph and confirmation that intellectual capital is worth as much or more than time honored physical capital formed the old-fashioned way — with distribution having enormous potential for advertising revenue. And so one generation trumps another.
Facebook is indeed the affirmation of the erstwhile undemonstrative, and their numbers could be in the billions. The market is of course not just in the United States, as there are many timid people in Brazil, Russia, India, and China, known as the BRIC countries, where there are massive youthful populations yearning to copy, connect, and join the mainstream of globalization.
The ascent of Facebook should also be seen in a broader context: a new technology-focused generation values the ability to liaise and conduct self-display more than privacy. Part of this culture is the obligatory panoply of digital kit, designed to amuse and release the human spirit.
Packing iPods and Velcroed iPhones, they glide effortlessly from Facebook page to Facebook page. When not downloading the latest new apps, they may listen to music and text simultaneously on a handheld, even while crossing against the light — all the while thinking it new found productivity called “multitasking.” With fingers pounding in a furious atavistic dance, they immerse themselves in a digital frenzy, limited only by telecommunications capacity and their number of thumbs. And ease of access to cyberspace allows the conflating of data with information with knowledge with wisdom. Add some hypercaffeination with macadamia lattes and extra foam, and you have a heady brew of technology and consumerism.
Finally, another value proposition of Facebook is to promote democracy, as it makes it more difficult for governments to assert control and repress their populations. One dissident with a popular message going viral can create a tidal wave against an established order. The 20th century was unkind to despots, and the 21st is no different, as we see from the Arab Spring. But there is also a dark side: snooping governments can find out who peoples’ friends are, and recruiters can search Facebook to see who has outlandish behavior in the public domain.
The potential of Facebook is as vast as the universe itself, about which we thus far know relatively little. In the event that there is life elsewhere — in the Milky Way Galaxy and possibly in billions of other galaxies — Facebook has massive export prospects. The only trouble is that instead of instant gratification, it will take many light years to reach out and touch.
About the Author
Frank Schell is a business consultant and former international banking executive. He serves on the Dean’s International Council of the Harris School of Public Policy Studies, University of Chicago, where he is a lecturer, and on the editorial board of the Chicago-based National Strategy Forum, which focuses on national security issues.
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Homer G. Olsen| 5.10.12 @ 6:57AM
I can't think of a better analogy for Obama than Facebook: it's meteoric rise in popularity and perceived value is based on self-promotion devoid of any true substance. The analogy breaks down, of course, when you consider that Facebook has actually created jobs...
Pecos Pete| 5.10.12 @ 7:23AM
Facebook is a prime example of group think. It is HOT because, well, everybody says so. Does Facebook make any significant improvement in productivity? I think not. Facebook may be a new avenue for advertising, so I guess from that standpoint it is one hell-uv-a marketing tool. Otherwise it is a huge time wasting human tool.
chuck| 5.10.12 @ 7:47AM
And some day it will go the way of the dinosaurs, and simply disappear.
Does anyone actually read internet advertising? Or does everyone look for the "close" icon, and click it as quick as you can?
DTOM!| 5.10.12 @ 9:21AM
Remember when satellite radio was going to end over-the-air radio? They paid $500 million of investors' cash to New York City's premier scatologist, Howard Stern?
Facebook is the current fad - another will come along to displace it soon enough. Where is Groupon, by the way? Their fifteen minutes ended half an hour ago, I think.
Throw you money at Facebook at your own peril.
The one danger in these instantaneous Fortune 25 firms is that much cash in hand all at once gives one a spectacular ability to capture some niche or end of the market, without any fear of legal limit because with billions and billions, you can buy Representatives, Senators, Governors, and Presidents, covertly or overtly, as is your want. How much campaign cash did Obama get from Fiskar, Solyndra? It was just millions - they reaped 100's of millions of federal largesse.
But if you start with billions and the right (actually, wrong) attitude George Soros is still plumbing the depths of the shenanigans that one can accomplish.
Here's a thought: what if a $100 million lottery winner started using the winnings as a bank roll to game the lotteries, building a machine to cover the possibilities in sufficient size that they could snag a couple more huge lottery purses. Statistically they should lose - but they might not...If you start out with $1 - you might be willing to gamble your new found $100 million to garner $1 billion. Humans are not rational with respect to mathematical probabilities, not even a little.
Just a thought...
TKRC| 5.10.12 @ 7:51AM
facebook is the new "pet rock". it's not a new idea, and it's not even a good idea. but for today's generation of 30-and-unders, where everybody is a narcissist and everybody demands that they get their 15 minutes of fame, facebook fills a void in their lives where can pretend that life holds more meaning and importance than it really does to the other people who know them, or know somebody who knows them. the shrewd underwriters of this IPO know that they stand to make a fortune that would make even a Saudi sheik blush. the ones left holding the bag when the bottom falls out will be those dumb enough to listen to their stockbrokers or mutual fund managers who advise them to load up and hold this stock for a rainy day.
Homer G. Olsen| 5.10.12 @ 7:56AM
But Zuckerberg & institutional investors will walk away with buckets of cash. Short sale, anyone?
Charles| 5.10.12 @ 9:05AM
Oh boy another useless thing to throw your money away on. If half the peaple around here spent as much time working on a real job as they do updating some page then we might get something accomplished.
Pzkfw| 5.10.12 @ 9:41AM
Hmmmm....rather like leaving a comment on this article...are you at your "real" job?
Buck Bradley| 5.10.12 @ 9:40AM
I don't miss junior high school.
I'm not on facebook.
I don't understand why anyone is on facebook.
But then I don't understand why anyone would miss junior high....
Occam's Tool| 5.10.12 @ 11:23AM
Buck, I'm on Facebook because it allows me to reach my friends from College, a few of which I still want to keep in touch with. I look on my page about once monthly.
I hated high school and junior high...
Moe Blotz| 5.10.12 @ 1:28PM
Facebook was instrumental in my tracking down a former college roommate of mine and then I found a high school chum. I am like you Occam, in that I rarely visit my Facebook page. The reminders come to my E-mail that I have not visited the site and people are wondering about me. Then you have the "friend" collectors who accumulate as many as they can.
PolishKnight| 5.10.12 @ 9:45AM
I agree facebook is overvaluated but the pet rock, it isn't. An allegory for facebook for me is automated Christmas cards. Christmas is the biggest holiday season for mail not because of it's religious significance but rather people keeping in touch with their relatives or friends, emphasis here, EVEN IF THEY HAVEN'T SEEN THOSE FRIENDS FOR DECADES.
Facebook not only automates the "Christmas card" process but also elevates it to allow people to peek in their ancient friends' lives and even secretly ignore things they care less about (maybe they don't care their friend's daughter got her braces out.) Facebook leverages those connections into targeted advertising. I got a notice from an old friend that she joined the American Express club and got into some contest and I clicked on it as well.
Is it worth a billion dollars? Probably not. But there is value in all those connections and information.
Regarding the revenge of the nerds angle. Sadly, those days ended in the 90's as America has degenerated into a crony capitalist state seeking to either export all high paying jobs, not just tech jobs but any jobs that can be exported, and import H1B's for the rest with Republican elites proclaiming that the only important issue is keeping the millionaire taxes low. Whatever the field, being an American citizen is now an outright disadvantage.
Rich Fisher| 5.10.12 @ 10:43AM
I don't have a facebook account and don't intend to ever have one. My wife loves it. I've tried to explain to her that people on facebook are no more than peeping toms. Peering into the life of others through the window of the internet. Sure, people volunteer to be "peeped" but that doesn't change the fact that it is nothing more than vouyurism (yeah, spelling was never my best subject). I am so sick of seeing a pop up picture of the "cutest" kid doing the "cutest" thing. It's already been done, we just never saw the need to advertise our cuteness to the world. This is what you get when people become the most important thing in their small universe.
JFrizzle| 5.10.12 @ 10:55AM
Look, Facebook fills a need. Some people have old college friends across the country or in another country. FB allows people to easily share photos, experiences and communicate on their own schedule. You can use the service without being an uber computer nerd.
Having said that, is it worth a billion dollars? Hell no! The users are the product and the second people start understanding that (likely after the IPO when FB will look to REALLY sell your personal data) then FB will go the way of Myspace. It provides value, but you must understand that whatever you share on your page...you are actually sharing with the firms who pay FB a lot of money to get the goods on you. User Beware.
PolishKnight| 5.10.12 @ 11:23AM
Maybe a billion is too much, but it's not entirely crazy and here's why: They have a massive subscriber base. Imagine telling someone in the 1940's about this new fangled TV device that will make billions of dollars in revenue providing expensive programming with absolutely no customer payment model whatsoever. "Free TV?!?! How crazy is that?!?!"
Hmmm, it's interesting how that model worked out. I now effectively pay for my TV programming through my cable provider AND through ADS! It's double dipping!
I'm considering signing onto google+.
cicero| 5.10.12 @ 11:44AM
Everyone is missing the point. This IPO is not about "capital formation". All of the proceeds will go to the current shareholders. None of the proceedds will be used to build, further, or enhance the company. Once the IPO money has been distributed, the current owners will have shares that will have 10 votes per as compared to the shares sold in the offering. Anyone who invests in anything but shorts on this one is an idiot.
Vern Crisler | 5.10.12 @ 4:35PM
Facebook allows you to post up some old high school pictures and to stay out-of-touch with long, lost friends. It may be useful for celebrities or salesmen who have something of a captive audience and can pester them to buy this or that.
A nice product, useful, but hardly worth spending more than a few minutes on a day.
Bob| 5.10.12 @ 5:11PM
Or maybe it goes the way of MySpace within the next year, when it's just not cool anymore.
POST American| 5.10.12 @ 10:24PM
------NSA and DARPA ---at it AGAIN!
Like MicroSoft and Google, like Craigslist and
PSY--world, of course, of course its ALLLL for data colleciton and tracking.
Of course it's about EUGENICS!
OF COURSE
And so keep a goin' ---just keep a goin'!
-----From Zuckerbergs ---to Sucker-----Borgs!
------------------JUST KEEP RIGHT ON GOIN'!