Facebook is the next … Google? Much-hyped IPO that went on to greater things? Netscape? Biggest IPO ever then a flameout?
Facebook is the next … AOL? Possible, even likely. If you remember, AOL was the dominant Walled Garden that introduced millions to the internet in the era of 28k baud modems. The former highflyer got passed by when technology shifts allowed users to get beyond the walled garden and experience the ‘real’ internet. AOL faded as a premier internet provider at technology shifted.
Today, Facebook is the number one internet destination, abnd its dominance seems unassailable. However, the recent IPO filing of the 8-year-old company (has it been that long?) has skeptics arguing that Facebook is likely to do a face-plant. Facebook hopes to IPO at a $100 billion valuation, on sales of $4 billion and earnings of under $1 billion. At the 100+ PE ratio, this company is proced as a hyped-up high-growth company, and will need years of more growth to justify that valuation.
But wherein does its valuation lie? The fundamental value of the company is not to its technology per se, although its technology is amazing and impressive: A relatively small number of engineers, barely a several thousand, and the capital requirements of a few massive server farms can service the social networking needs for 800 million users. That’s technology leverage unsurpassed by any other company. As Churchill would put it, never have so few served so much (web pages) for so many.
Facebook’s value is the network itself, and the very nature of a social networking ‘herd’ to engage in herd-like behavior and hangout in one spot and not, for example, Google hangout. Or Friendster, Orkut, or a dozen other social networks. Or Myspace. What makes Facebook a gravity-defying yet slippery valuation company is the tremendous ‘lock in’ of a network, yet the fickleness of users, who could move on if they so choose.
A disturbing aspect of facebook’s value is that the more facebook knows about us, the more they can help advertiser’s target us. Their value increases by getting us to divulge more about us, for example, in our timeline. It’s disturbing enough that anyone who wants to fight back against the invasion of privacy inherent in these sharing networks should simply drop out, turn off, and shun these networks. Privacy or convenient online social interaction – pick one.
The internet is continuing to evolve and continuing to get bigger. At some point, the walled-garden aspect of Facebook can and will break down. The biggest threat is not Google or any other company, but a different paradigm for social networking that broke down the walls. In some respects, Facebook has gotten ahead of the curve with an API to embed facebook ID in all sorts of discussions, fending off OpenID. But since their business model is ad-serving, at some point being an internet utility for other sites will be a negative-sum game for them. What if the browser itself had peer-to-peer connections to friends, with all the tools for communication embedded, making a central ‘facebook’ obsolete? The technology is there, it’s just a matter of who will create enough of a feature-rich ecosystem and will users follow.
Facebook is the next … facebook. It’s had a unique journey so far, and it may well uniquely navigate the challenge of the coming open federated social web. Most impressive is that its doesn’t seem complacent. My verdict: Luke warm on its stock at its IPO price, but an incredible company that will continue to surprise us.