Facebook will know the future before you can Tweet it

What were you doing last night?  Mark Zuckerberg had a hackathon.  Oh yeah, and today his company went public.

I have been thinking about valuation of Facebook all week, and i think whatever the offering price is, it's wrong, and the GM announcement just made things worse by focusing on revenue in the Millions.  The valuation should not be  based on revenue.

Instead we are looking at the premiere testing ground for defining social expereiences and ad products across multiple channels based on the behavior and reactions of real users.  The future is clearly coming, where recommendations and votes of confidence from friends will be louder than advertising.  With the end of broadcast, and even the end of web portals,  attention is a strategic asset.  And Facebook has a boatload of attention, because we are addicted to news about other people.  

This need to gossip, and the need to share, is a basic human need- It's Brain Candy, according to Harvard researchers.

To be cute about my hypothesis:  Facebook will know the future, ship an awesome product and move on,  before you can Tweet it. 

Facebook is in a dominant market position to be able to take the attention people spend on the platform, across devices and all over the social web, to find out what works before any of their competitors, and with enough scale to stay ahead.  As long as they do not piss off users (the product being sold to advertisers) then the business is incredibly valuable.  I don't really know how to value it, but you must imagine some of these platforms competing with each other, and almost no one can compete with Facebook in this regard. 

It comparatively easy to build a behavior network to scale, but people are growing tired of joining new identity networks - they already have Facebook, or Linkedin, or Google,  and it is so easy to get traction by just riding over the top of that; consumers will begin to expect it.  Such a strategic advantage is incredibly valuable, and suggests that Facebook might even have a business when many of these other platforms just get boring.  Facebook will be the social layer people use - and that could echo for a decade or more.

Facebook keeps saying they are not trying to be a great company, they are trying to make a great product, and while the effects are similar the emphasis contained therein produces really remarkable results.  So don't worry about getting the valuation right, because they are going to ship a lot of code before anyone figures out the generational shift in behavior and advertising we're in, but I think Facebook might be the company that gets there first.

Facebook stock closed barely above the offer price - find me someone at Facebook who really cares about that, instead of shipping  a great product.  Their strategy? Culture as strategy.  Facebook tries to get people to enjoy but not flaunt their wealth and these norms suggest that inside Facebook is brewing...the next Facebook.

WSJ vs. NYT: The Reality Distortion Field

Side by side, the headlines from today's WSJ and Today's NYT.  Doesn't get any clearer that these two papers are picking the facts they want...in everything.  

 

Options Tax Treatment Reminds us of Broken Incentives

From today's "But NObody Pays That" post on tax treatment for corporattuibs and the wealthy, those who can afford to manage their income for strategic tax avoidance:

“These options gave executives a highly leveraged bet that stock prices would rebound from their 2008 and 2009 lows, and are now rewarding them for rising tides rather than performance,” said Robert J. Jackson Jr., an associate professor of law at Columbia who worked as an adviser to the office that oversaw compensation of executives at companies receiving federal bailout money. “The tax code does nothing to ensure that these rewards go only to executives who have created sustainable long-term value.”

Yes, a highly leveraged bet.  Yes, paid off on the rise in stock prices  and yes rewarding execs who may or may nor have creted susainable long term value.  Thjose are all true.  I think the article unfarily targets Mel Karmazin, whose tenure with the embattled SiriusXM represents management of significant risks.  The mechanics of rising tides - which governemtns world-wide have been instrumental in rising -  do lift all boats, and it is troubling that we need the tides to rise in order to have the appearance of investor confidence.  As the markets freak out time and time again, what goal are we amanaging toward? Are we managing for value?  For whom?

The (mis)alignment of US Tax policy, compensation incentives, and the martket should not be an indictment of Karmazin or others like him.  The critique of the market and the way the few are able to profit from its gyrations remains. But let's examine our need for the apprarance of stability and confidence, for the appearance of growth?  Stroing products, made over the long term, producing customer value, are the way out, not the feckless consumption of lattes and Barbie dolls on credit.  It's a sad and despareate fact that we all need the market to appear to rise- and bailed out the global financial system to ensure it.

According to the Senate Joint Committee on Taxation there is $25 billion in revenue for the treasury at stake with these deductions - and the implicit subsidy from US Taxapayers to employers who use options for compensation is no fun at all. Balancing the budget probably won't happen a nickel here, a dime there - let's face it, $25 billion over 10 years is a drop in the bucket of trillions - but aligning the tax code in more productive ways could certainly help.

 http://nyti.ms/vx14m7

Apple Finances Start-up Costs to Manufactire the Future

Nice wrap up on SAI, from a Quora post about how apple uses its massive cash resources:

When new component technologies (touchscreens, chips, LED displays) first come out, they are very expensive to produce, and building a factory that can produce them in mass quantities is even more expensive. Oftentimes, the upfront capital expenditure can be so huge and the margins are small enough (and shrink over time as the component is rapidly commoditized) that the companies who would build these factories cannot raise sufficient investment capital to cover the costs.

...

Apple is not just crushing its rivals through superiority in design, Steve Jobs's deep experience in hardware mass production (early Apple, NeXT) has been brought to bear in creating an unrivaled exclusive supply chain of advanced technology literally years ahead of anyone else on the planet. If it feels like new Apple products appear futuristic, it is because Apple really is sending back technology from the future.

Reminds me of the Clarke's Third Law:

Any sufficiently advanced technology is indistinguishable from magic. -[Wikipedia]

Revenue Growth vs. Innovation

Yesterday's whipsaw of a market swing had me concerned, but only because of how little the "numbers" reflect whether we're taking the steps necessary to right the ship. 

Planet Money's Jacob Goldtein is exactly right in pointing out Why More Jobs = Rising Unemployment -our rosy view of job growth is a reminder that firms must replenish their human capital to realize lasting gains in the marketplace for goods and services.

Check out this gem from the WSJ (my empahsis added):

"Companies are still trying as hard as they can to achieve output gains without adding to their work forces," said Nigel Gault, an IHS Global Insight economist. "It's getting more difficult to do that." -"Productivity Continues to Rise but Breakneck Pace Slows"

If companies continue to please the short term desires of Wall st, we'll continue to see companies more worried about "hitting their numbers" than hiring the workers who will create the next generation of profitable products and services.

So in the short term we preserve the "good news" of profits, only to stew in the "bad news" later: underemployment, restrained innovation, and a shrinking tax base to pay for our ballooning gov't spending and colossal debt.