Consumer 12.0: Facebook’s worth is known, in more than just cash

Facebook CEO Mark Zuckerberg (center) at the Nasdaq opening of trading in the firms stock. ZEF NIKOLLA / Facebook
Facebook CEO Mark Zuckerberg (center) at the Nasdaq opening of trading in the firms stock. ZEF NIKOLLA / Facebook
Posted: May 28, 2012

What do Oc­cu­py Wall Street and Facebook’s high-pro­file stock splat have in com­mon? Both look a lot dif­fer­ent depending on where you sit — wheth­er, as the occupiers might put it, you’re in the 1 per­cent or the 99 per­cent.

To the 1 percenters who bought in ear­ly and cashed out when Facebook shares went pub­lic at $38, all is good. They took a risk and made bazillions. To their less-hap­py breth­ren — such as the Wall Street in­vest­ment bankers who ap­par­ent­ly got greedy in pricing the stock, or the bro­ker­age executives dealing with investors burned when the NASDAQ went kablooie on opening day — this was a curve­ball when they expected an easy pitch to hit. Stuff happens; they’ll let the lawyers sort it out.

To the 99 percenters, the stock splat was most­ly soap op­era, with one ex­cep­tion: Small "mom and pop" investors, usu­al­ly shut out of hot IPOs, were lured in un­usu­al numbers to Facebook’s offering. In­stead of the first-day "pop" in share prices that lucky 1 percenters can usu­al­ly count on, mom and pop got popped in the gut. It’s a shame that Mark Zuckerberg’s en­thu­si­asm for letting Facebook members into the game didn’t in­clude, say, a dis­count tick­et. Still, those are the risks of playing in the big leagues.

But here’s the thing: Facebook isn’t its stock. And may­be the per­cent­age that matters most here isn’t the 1 per­cent or the 99 per­cent, or even the 16 per­cent drop in Facebook’s share price in lit­tle more than a week.

In­stead, con­sid­er the 25 per­cent: That’s the as­ton­ish­ing frac­tion of time that Amer­icans spent on Facebook while on­line in April, according to Niel­sen.

More than 151 mil­lion Amer­icans visited Facebook last month — more than 70 per­cent of every­one who went on­line, Niel­sen reported Fri­day. Among the na­tion’s Top 10 Web brands, only Goo­gle surpassed that fig­ure. And Facebook members spent more than sev­en hours on its pages — near­ly one in every four of their av­er­age 29 on­line hours. Noth­ing else — not Goo­gle’s var­i­ous pages, nor Ya­hoo’s, nor Mi­cro­soft’s — came any­where close.

And that doesn’t even count mo­bile apps. Niel­sen says. Facebook’s Apple and An­droid apps, among the most pop­u­lar in both systems, were used by 62 mil­lion U.S. adults in March.

Un­der­stand­ably, those are the kinds of numbers that made Mor­gan Stan­ley and oth­er in­vest­ment banks drool at the chance to lead Facebook’s pub­lic offering. At the same time, there were plen­ty of red flags, such as Facebook’s re­peat­ed warnings that it hasn’t figured out how to make mon­ey on an in­creas­ing­ly mo­bile In­ter­net au­di­ence. Even for a ven­ture such as Facebook with ac­tu­al rev­e­nue and profits, a new com­pa­ny’s pub­lic offering is in­her­ent­ly risky — you’re buying busi­ness plans, hopes, and dreams.

If you aren’t among those counting winnings or nursing wounds, this is a good time to step back and fo­cus on the phe­nom­e­non be­hind Facebook’s stock. In just eight years, Zuckerberg’s cre­a­tion in a Har­vard dorm has changed the way many peo­ple use the In­ter­net, a cul­ture-chang­er that it­self is bare­ly past its in­fan­cy.

Yes, Facebook offered a better plat­form than its predecessors for shar­ing photos, voicing opinions, and connecting or re­con­nect­ing with friends and rel­a­tives. But that mix included some key innovations.

Re­mem­ber the fa­mous New York­er car­toon showing a ca­nine tapping at a key­board: "On the Inter­net, no­body knows you’re a dog"?

That’s not true on Facebook, which requires members to use their ac­tu­al names — a blow to the an­o­nym­i­ty that can have val­ue in fostering open speech but too of­ten leads to thought­less or ugly rants.

That fo­cus on "au­then­tic iden­ti­ty" has oth­er consequences, of course.

"Facebook is a da­ta­base-driven ad­ver­tis­ing and mar­ket­ing com­pa­ny," says Jo­seph Tu­row, a professor at the University of Penn­syl­van­ia’s An­nen­berg School for Com­mu­ni­ca­tion who studies the con­nec­tions be­tween me­dia and com­merce.

Tu­row says Facebook users of­ten mis­un­der­stand the sig­nif­i­cance of the site’s pri­va­cy controls. They al­low care­ful users to lim­it the in­for­ma­tion they pre­sent to the world at large, but not the data avail­able to the com­pa­ny it­self. It doesn’t share that per­son­al in­for­ma­tion with ad­ver­tis­ers, but it uses it to serve you ads.

One iro­ny is that Facebook’s push to please Wall Street threatens to un­der­mine at least some of its at­trac­tive­ness to users. If you don’t re­al­ly want most kinds of ads on your smartphone, trust me: You’re hard­ly alone. If Facebook’s stock soars, it may mean the com­pa­ny has figured out how to send you more ads while stopping just short of alienating you.

Is that bad? Not at all — those servers and pro­gram­mers cost mon­ey, and those who built and supported Facebook de­serve a re­ward. And those who ride out the cur­rent set­back may some­day be thank­ful, according to Phil­ip Moy­er, managing di­rec­tor of the tech­nol­o­gy group at Wayne’s Safe­guard Scientifics, a leading growth-stage ven­ture firm.

Moy­er shies away from buzz-heavy IPOs — "I like to see the froth come out" — and Safe­guard didn’t in­vest in Facebook. But he says Facebook could well "grow into its val­u­a­tion" even­tu­al­ly.

His biggest ba­sis for op­ti­mism? The so-called net­work ef­fect — the well-ground­ed the­o­ry that a net­work becomes more valu­able to every­body, including its owners, as more peo­ple join. Facebook’s huge num­ber of members means it would be ex­treme­ly tough to sup­plant.

There are many cynics out there who ques­tion Zuckerberg’s claim that his pri­ma­ry goal was to change the world, not to make mon­ey. But Moy­er isn’t among them.

"I think some of the motivations at the com­pa­ny lev­el were good," he says. "But when things hit the fi­nan­cial markets, it gets a lot more com­plex be­cause of all the stakeholders, as well as your investors."

If Zuckerberg’s real goal, expressed in Facebook’s mis­sion state­ment, is "to make the world more open and connected," the truth is he’s al­ready succeeded.

While the dust settles, it’s worth remembering that not every­thing valu­able can be measured in dollars and cents.

Con­tact Jeff Gelles at 215-854-2776 or jgelles@phillynews.com.

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