There seemed to be a collective breath holding going earlier this week when it was reported that Facebook is apparently planning an IPO in the first half of next year to the tune of $10 billion, which would value the company a cool $100 billion. If successful, it would also be the largest tech IPO in history, but merely the fourth largest ever; still not bad for a company that wasn’t even around 8 years ago.
Some of the reports couldn’t resist the “Dr Evil” reference, that line in the first Austin Powers movie where the numeracy challenged Dr Evil proposes to hold the world ransom for $100 billion. However, compared with the amounts that we are bombarded with on a regular basis these days, a mere $100 billion seems like a piggy bank of small change. Greece is threatening to buckle under a 340 billion Euro debt, the US government bailing out the financial community to the tune of $700 billion in 2008, and of course now facing a $15 trillion deficit as at November 17, 2011 (take that Dr Evil!). These types of numbers seem to be rolling off everyone’s tongue as if discussing the latest petrol prices. While many lay people may still gasp in awe at the likely Facebook valuation, my guess is that very few are able to take it beyond its abstract meaning of “a whole lot of money”.
So let’s just quickly clarify what we are actually dealing with. Wallstats.com puts the cost of waging 48 hours of war in Iraq and Afghanistan at one billion dollars, which puts the $15 trillion US-deficit somewhat in perspective. The site usdebt.kleptocracy.us on the other hand, does a great visualization of various astronomic amounts, of which the One Billion Dollar one looks like this:
So now that we have established beyond doubt that we are talking about more money than you can reasonably carry away in a bank robbery, let’s go back to Dr Evil and look at the ransom part. There is actually a bit of irony in there that I find much more irresistible than the dollar amount itself.
The vast amount of intimate information Facebook now has available about its users worldwide is such that if it was a government agency, it would pose an internal security risk for any country that has a sizeable Facebook user community (which excludes, notably, China). So with vast amounts of sensitive intelligence and deep pockets, you may indeed be forgiven to think that there is something slightly creepy going on. But maybe that’s because (disclosure) I don’t do Facebook.
The notion that you give your personal data (and then some) voluntarily over to a commercial corporation, whose intentions about what it plans to do with it are less than clear, and then go out to buy into the company once it goes IPO sounds almost like buying back what you have given for free. But who knows, maybe Facebook won’t get the $10 billion IPO, or even if, maybe it won’t hold its value after the launch which in the current economic climate is quite possible. Just this week it was reported that companies that listed in the US this year had lost an average of 10% of their value after debuting. And that includes coupon-seller Groupon, whose shares have now fallen below their initial price, as well as music streaming site Pandora Media.
There will no doubt be a great deal of analysis and debate about whether Facebook is actually worth $100 billion. But whichever way it goes, the IPO (if it is true) sends a powerful signal to the industry. It implies that the company, just like other entertainment and communications technology companies is poised to continue to thrive, no matter whether there’s a deadlock in the Senate or the Eurozone breaks up. Quite to the contrary. It seems that the more dire the circumstances, the more we collectively flee into the haven of entertainment, even if it is just for a short while. The record 42 billion online videos watched by US citizens in October this year speak for themselves, and so do the reports that despite the general doom and gloom telcos are set to profit from stable growth in the coming years. On the whole, it looks like it’s statistically proven that we love to be entertained when we are happy and we also spend money to be entertained when we are sad.
Of course, as the entertainment sector bucks the trend and becomes the shining example of successin an otherwise faltering economy, things will get a lot more competitive for a share of the spoils. Many other operators, currently on the industry fringes may just muscle their way in. For companies already in the entertainment and communications technology space this means just one thing: innovate or perish.
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