Instagram and why Facebook should stay private



That billion number has eye popping all over mainstream media.  Did Facebook panic ?  Did Zuck blink ?  Is Facebook a real business or will it go the way of of MySpace ?

Much of the language used reminds me of the early days of YouTube, or for that matter, facebook itself.  ”No monetization model, it will never be valuable, real businesses need real revenues, and so on”.  How long before people fully appreciate the value of being at the core of network effects ?  

Sure, $1bn is a big, nice round number.  But if you assume Instgram was going to represent, say, 10% of the facebook user population by end of year, does a 1-1.5% dilution of capital sound that bad ?  ”Dear board, I would like to acquire a company that will soon have 10% of our user base for 1.5% dilution, what do you think ?”  The billion is just a reflection of the value of the acquisition currency, it’s not like a billion in cash was forked over.
 

Protecting The Hacker Way 

When facebook goes public, it will be submitted to the tyranny of quarterly reports, be subject to endless speculation on future strategy and how these affect models, and inane debates on whether the operating leverage is X or Y % (remember when investment analysts were trying to divinate YouTube’s streaming costs ?).

The Hacker Way may just not be compatible with the Quarterly Way.  I see every company out there building on top of a Graph Provider called facebook.  Facebook should pursue a long term strategy that is not influenced by the pressure to deliver on quarterly forecasts.  In my mind, Zuck should stay private, simplify his shareholder structure so he can stay off the SEC radar, take money from the next Buffet and take the 20 year view on building facebook out.
 

Long live the next instagram

The other side of that coin is that small design focused team managed to make a serious dent in facebook’s armor.  For all those who think that it’s the end of social networking, this is a useful reminder that we are in the first innings of the networked revolution.  I can’t believe either facebook or twitter are anything but initial, hesitant evolutionary paths in our connected future.  Much remains to be invented.  Long live the future.

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  • http://needforair.com/ Charles Migli

    I don’t see clearly why in the case of Facebook short term forecasts pressure could impede the building of a long term strategy? We could argue this for every public company couldn’t we? Or even when a startup is raising VC?

    • http://twitter.com/JakeCareyRand Jake Carey-Rand

      We’ve seen the same pressure on Jeff Bezos and Amazon for years, but the only reason why the Street has “somewhat” allowed him to continue at the helm is that he’s seen as a God and truthsayer. However, the pressure is still there and if it weren’t for his leadership, AWS, Kindle and other game-changers would not exist.

  • http://marcingrodzicki.com Marcin

    Great reference to the ‘quarterly way’, Fred. I think in general corporate governance needs to change if we’re to produce really innovative companies. We’re no longer in the commodity trading, finance engineering and profit optimizing times.