Sure, Jerry McGuire is already becoming an ‘old’ movie that the current young generation has not heard from. It was not amazing, but it still had one of the most iconic lines I think from the last 15 years… ‘Show Me The Money!’
How I want to use that title here has nothing to do with me, but with the wonderful IPO of Facebook that the whole world of finance and IT already have written about. Some time ago I wrote a post about that I cannot, by the life of me, understand the excessive overvaluation of a social-media product like Facebook. Sure, there are many more social media products, but of course, Facebook takes the heat right now.
We are talking here about an economic crisis. The Euro goes down the drain, People take their money out of the banks, lose their cars and homes… (still they complain about this on their iPhones and iPads with an additional $80 data package) and this has been the era for quick-cash companies, loan-sharks and coupon-based and thrift-businesses.
Which is, as anyone with a clear grasp of economics, nothing new. Prosperous times are always followed by an economic crisis. Just like the internet bubble – it helps ‘clean’ the markets up again. Get the financial world stable again in the long run. The times are hard, but not unmanageable. And, most of all, hard times also deliver excellent opportunities for start-ups; costs to start are low, and new businesses mean new investment opportunities, and although the risk of failure is higher, the rewards for success are the highest in these times. So, the people who start and get through this, usually know how to fare well once the times get smooth again.
But! Then there is such a thing as Facebook. Expecting a company value of $100 billion! Sure, we have heard the amount before 2 weeks ago so many times, that we never really stood still about it. A $100 billion. Let me rephrase that. I have a solid 6-figure salary. So I have it nice. For me, I have to work 700,000 years to earn that money.
Let me write that out for you. I would have earned all the money that only Facebook would’ve been worth two weeks ago about 693,000 years after the dawn of the modern civilization – and then I am averaging dawn of civilization with the early Egyptians and Greeks. Don’t blame me if this is not accurate.
Social media in that time was bickering hieroglyphs in a sand-stone wall. Wow… think about it. Twitter in that time. Writing 160 characters would take days. Now I understand why the Egyptians were so productive; they did not spend mentioning all their time about what coffee they were drinking and that they laughed out load when a girlfriend tried on a new dress.
I don’t have a problem with the IPO, look, if people are willing to buy those shares, fine, why not try to sell them as high as possible. That is the world of commerce for you that we all live in. What I cannot grasp is the value for what?
Bill Gates, in his heyday, was valued – personally – to be worth $50 billion. This included the stock he owned in Microsoft.
I could actually understand that. Take a look at Microsoft; it developed complete operating systems, office suites, CRM/CMS systems, support, machines and devices, R&D, training and consultancy. It owns and owned hundreds of brands, invests in company and education and government.
Facebook has a website.
Microsoft owns and owned their lines of products, patents, tools, businesses, vast amounts of personnel, research departments, virtual and physical networks…
Facebook has a website.
Look, I know Facebook has more than a website. But it is one thing, and it is all based on a site and a way people communicate within that site. Technically, as many developers and IT professionals know, you can develop a competitive product with the same basics with a good team within a week. Sure, it will not be as polished and extended as Facebook is now. But still… we are talking about a company that went to the market expecting to be worth $100 billion dollars.
I just want to know, from one sane person, what within Facebook is worth a $100 billion dollars.
Sure, they have close to a billion users. Of which about 700 million are active on a daily basis.
Does that mean that every user is worth $100 ? Because, with my simple understanding about things, it means that my information is worth $100 to Facebook. Basically that means that my IP address, Email address and like information is worth $100 to them.
And this is why I have mentioned in that earlier blog posting; why isn’t the American Phone Book publisher giving out all this contact information about roughly 200 million households away for free to everyone?
Sure, that comparison does not match completely – but it does make you think. Facebook does not know my address. They do not know my phone number. The phone book has all that information spot on.
Still… Facebook’s incorrect information or lack of information about me is worth so much more than the correct information in the phone book.
Anyway. that is what I have a problem with in this market. Somehow, companies like Groupon and Facebook, even Google partially, are worth absolutely too much money from a realistic point of view. And it feels like that the only reason that they are worth this much, is because investors are too greedy that they want to be even richer the next day, instead of investing wisely over time.
But, as we know now, the worth of Facebook did not really end up with $100 billion. A little less. Still, an exorbitantly high number, and far from realistic in my point of view. And the number is going down and down. And eventually it will level out on a healthy amount, and everyone will forget about the commotion at one moment. Most likely after Google or Microsoft buys it out.
So, yesterday I was following the fluctuations of the share price a little bit on Nasdaq, and between roughly 11.30 am – 12.30 pm the value of the shares had dropped from about $18+ billion to $17+ billion, and the ‘+’ in about identical ranges. In an hour, Facebook ‘lost’ $1 billion.
That reminded me about Facebook, about a month ago, buying the ‘relatively small’ iPhone/iPod service InstaGram for that same amount. And I remember here talking with my colleagues about the incredible amount of money they paid for a photo service.
But now it made all sense. Relatively speaking, for Mark Zuckerberg buying InstaGram was about 1 hour of work. So, in my point of view, I would’ve bought InstaGram for about $65.
And that leaves me with one conclusion about all of this:
While I am wondering here about the value of productions, and where that money is, I might be the one who is blind to the fact that money simply is where money goes to. Value is made not by functionality, mass or reach… value is made by evaluating what people will pay for it, for whatever reason it may be.
And that makes me understand why people like Mark Zuckerberg might be a lot smarter than we might give them credit for. Because, not only are they able to build up a product and a name, but also to grasp and understand the way markets and the economy works.
So, while I still am amazed by the valuation of these products and companies, I can dislike the persons on top as much as I want, I absolutely have to respect them as the successful business men they are.