Facebook valuation: $100 billion for what?

When Facebook filed its initial public offering, the world’s media, led by the Wall Street Journal, speculated the social network could be valued between $75 billion and $100 billion, putting the company on track for one of the biggest US stock market debuts of all time. While some suggested this would make it the largest technology initial public offering (IPO) ever, others have questioned the valuation, saying that $50-$75 billion is more realistic. Yet amid all this monetary speculation, no one has raised the obvious question: why has a social network with no productive capacity whatsoever attracted such media attention and an investment frenzy?

It is really important to ask what Facebook actually does in order to grasp the significance of all this interest in its IPO. Google, Amazon or, indeed, Apple, all provide services, or facilitate access to a service or product. Facebook does none of that. As an interesting article on Slate put it, ‘What’s different about Facebook is its product: Facebook is us. You go to Google for web pages, you go to Apple for computers, and you go to Amazon for stuff. What does Facebook give you? Me and you and everyone we know.’ But this is only the start of the conundrum. Connecting ‘us’ and providing a platform for collaboration could be the foundation for remarkable progress and productivity. But Facebook does the opposite. It is both a product of, and now has become a major contributor to, the contemporary culture of self-absorption and consumptive indulgence.

Facebook and its predecessors, particularly MySpace, rose to prominence not because they were the product of lone entrepreneurial geniuses or compelling technologies. They emerged, rather, because they fulfilled a social need that they barely understood. This need belonged to ‘digital children’, the generation whose childhood had been transformed by risk culture and who embraced digital media as a means of gaining some autonomy from the pervasive gaze of their parents. Because this generation could not escape the physical presence of adults, digital media became attractive because it provided them with the space in which to experiment, entertain and express themselves free from supervision. The need for self-expression, acknowledgement and the accumulation of ‘friends’ as a marker of social status drove the demand for technologies like Instant Messaging, blogging and eventually social networking. These tools gave the ‘digital children’ control, and freedom to do what all younger generations need to do: namely, create the spaces within which to indulge their self-absorbed nature, to experiment with identity and to attain peer-driven support and discovery. This is what gave rise to a host of social-networking sites of which Facebook emerged as the pre-eminent one.

The fact that social networks like Facebook are now intergenerational should not be confused with the impulse behind their emergence. ‘Digital children’ were a product of their time. Like previous generations, they used, adapted and shaped the technologies they found around them. The culture they spawned, which was driven by introspection and self-expression, was a natural outcome. The fact that today this same cultural impulse affects all generations, particularly adults, should not be blamed on the digital kids. Rather, it expresses how contemporary society has become infantilised. Facebook is now a cultural institution, which is driven by, and nurtures, a culture of self-reflective, self-absorbed individuated entertainment and therapeutic communications. The sad truth is that the frenzy and excitement generated by Facebook’s pending IPO reflects little more than its cultural significance. And this is a million miles away from where investment ought to be focused.

The importance of this cannot be underestimated. The problem is not simply a short-term one, where investors see the possibility of making a quick killing on the stock market. There is every possibility that Facebook’s IPO will generate a valuation of $100billion. What’s at stake here is more than the staggeringly large figures of money. If Facebook were to realise this investment, it would become even more of a material force, increasingly able to shape this very unproductive egosphere of individuated consumption. If you think this is an exaggeration then examine Facebook’s S1 – the document the company filed to kick off its initial public offering – which lists several risks to its future success. Keep in mind this is a document it has to produce by law to be transparent to potential investors. Facebook argues, for example, that if it fails to retain existing users or add new users, or if its users decrease their level of engagement, then its revenues, financial results and business may be significantly harmed. In other words, what Facebook understands, and what it wants its prospective investors to understand as well, is that its future success relies upon more of the same: more people playing games, sharing photos and sending each other messages upon which Facebook can generate revenues through targeted advertising.

The largest technology IPO in history, in other words, is not about a technology that can transform nature, provide new sources of energy, or new cures for illnesses or cancer, for example; it is about a platform that encourages ever more of the same unproductive, self-absorbed communications between users.

And if you imagine this to be an exaggeration, be mindful of the fact that there are now serious studies showing that social media networks are becoming more addictive than nicotine and other drugs. In this view, we appear to be powerless against the power of Facebook, which suggests that Facebook’s valuation of $100billion might indeed be an underestimation.

It is a sad reflection on our society that so much excitement can be generated over what is nothing more than a means for self-absorbed consumption. It reveals just how far our expectations about what technology can do have been lowered. It is rather tragic. On the one hand, connecting 845million people together has so much potential it is staggering. The role Facebook has played in the Arab Spring, although greatly exaggerated, at least points to the potential power of this connectivity. But as Facebook’s S1 reveals, this is not going to be part of Facebook’s focus in the future. Instead we will see more gossip, self-absorption, targeted advertising aimed at and driving more consumption. The productive potential is incredible. Yet what is being celebrated are connections as ends in themselves, spawning a culture of self-obsession where we can all let the world know we merely exist.

There is a statistic that social media gurus and others uncritically roll out when they evangelise about social networks and how they are changing our society: ‘If Facebook were a country it would be the third largest in the world.’ What they fail to add, however, is that it would be the most unproductive country in the history of mankind.

The Facebook IPO does show how unambitious contemporary society’s expectations are about technology. That Facebook could become the largest technology IPO in history is an alarming prospect. It is simply not possible to compare the IPOs of past technology giants like IBM, Microsoft or even Apple, which has itself made a great success out of the creation of devices and applications that elevate the self above all else. $100 billion could fund the further quest of space, or research into nanotechnology and new drugs. There is nothing inevitable about the fact that updating your status on a beautifully designed device or social network website is now regarded as important, if not more important than updating our understanding of how the world works. It is more necessary than ever for those who still believe in society’s capacity to create productive investments that can solve the problems facing humanity to come together, raising a collective voice of opposition to this narrow self-indulgence. Anyone like to create a Productive Investment Group on Facebook?

Dr Norman Lewis works on innovation networks and is a co-author of Big Potatoes: The London Manifesto for Innovation.