Friends With Money

The last couple of days the news has been full of stories about the Facebook IPO and whether people were too generous pricing it when the stock first went on the market. Basically it made a ton of money the first day, only to watch the price precipitously drop and never get back to where it started. Now it has come out that some of the investors believe they were misled about the business behind Facebook and the banks may have sold too many shares, which has led to calls for regulators to launch an investigation about what the hell just happened. (First off, why it is that no one on Wall Street ever sees this kind of thing coming? They are all about the investigation after everyone has lost money, but for some reason no one seems to ask any questions while the investors still have their life savings. Did we learn nothing from the stock market crash in 2008?) Personally, this doesn't affect me in the slightest because I don't even have a Facebook page, so I wasn't about to invest in the brand. Hell, I don't invest in any brand as I don't play the stock market. There are just too many shady people doing too many shady deals with other people's money for me to feel comfortable with it. Besides, I do a fine job of wasting my money on my own, thank you very much.

But never mind all that, because my main question is why people thought Facebook was worth all this money to begin with. Some analysts have listed the company's worth at $100 billion. How exactly does that work? I mean, it's a free internet website. I'm sure they make a lot of money through advertising and promoting of products, which is all about the pageview numbers, and with hundreds of millions of subscribers Facebook has plenty of those. But the company doesn't actually make, sell or distribute anything of their own, other than profile pictures of couples in which one of the people is looking very desperate to prove to their old high school classmates that they could actually pull in a girl. [Sidebar: Honestly, people need to stop doing that. If your profile picture is of you and your significant other it makes it look as though you are amazed you are in a relationship. Learn to stand on your own two feet. You want to put up a two-person picture, but it should have kids or you should at least be married. Just the two newly-dating people makes for an awkward look.] Last time I checked if you don't actually sell anything of your own than how are you supposed to turn a profit, let alone hundreds of billions of dollars worth of them?

What makes this entire news story so frustrating is that it has happened numerous times before. Everyone references the "tech bubble" bursting a few years ago, but no one seems to have learned anything from it. Didn't people take notes as they watched the money disappear after investing in Pets.com? If you think that was an isolated incident from a different type of website, what about MySpace? That was the same kind of social media site, sold for $600 million back in 2005 and last year was sold a second time for about 6% of that price. Besides all that, there have been questions about how Facebook, and specifically Mark Zuckerberg, have been operating since the day they started. I'm not knocking the guy, because he clearly has more business sense than I do and often you can't accumulate that kind of wealth by being a nice guy, not to mention that if everyone is taking shots at you than you are clearly doing something right. I'm simply saying I would have a lot of questions before handing him a large sum of money and it doesn't appear that anyone was willing to ask those questions. Even if everything was totally on the up-and-up there are enough people wondering about it to make the stock a questionable investment.

Now, it is entirely possible that this is all just a misunderstanding - everyone got too caught up in the moment and over-reached, but the market will eventually correct itself. After all, a similar thing happened when Amazon first began trading publicly - it was priced too high, lost a ton of money the first couple of weeks and then, through a few months of normal trading, everyone eventually figured out what an appropriate price would be. Today that stock is one of the better bets you can find if you wanted to invest. However, Amazon actually provides a service and has a sound business model whereas I'm still not sure what Facebook wants to do in the long-term. Without a long-term plan it's just a fad and we all know internet fads can go away as fast as they appear. Even now people I hear the people who have pages complain that they are beginning to tire of Facebook. I'm sure Yahoo never thought they would be irrelevant in the online world, but there they are. And unless Facebook figures out a way to produce something with helps society a lot more than letting people see embarrassing pictures from their co-worker's vacation, they could be right there with them.