Last week marked the much-anticipated Facebook IPO. It was a failure by all accounts, except for the bank accounts belonging to Mark Zuckerberg and other early founders and investors of the company. In order to collect its $67 million underwriting fee, Morgan Stanley had to spend hundreds of millions more, possibly even billions, just to keep the stock price from collapsing below its initial offering price of $38. And if Facebook follows the recent examples of Zynga and other social media companies that produce nothing and provide nothing, it will be closer to $25 than $50 within six months before eventually going the way of MySpace.
But despite its valuation measured in the billions, Facebook actually produces very little in the way of actual profit. Its advertising revenue per user is estimated to be around one-thirtieth the value of the revenue per viewer presently earned by Fox, and it cannot hope to maintain its growth rate without finding another planet with six billion inhabitants to colonize.
So Facebook represents the ultimate test of two ideas. The first is that traffic once attracted, can successfully be monetized. Facebook is presently earning only $4 per user per year. Its investors are gambling that it can increase annual revenue per user before its users get bored and begin to fade away. The second is that there is real value created in passing personal information back and forth between people.
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While the national unemployment rate is relatively high and the employment-population ratio has fallen significantly since 2008, in historical terms, it's really not disastrous. It is higher, in fact, than it was for most of the 20th century, due to the influx of young and unmarried women into the labor force; whereas about 30 percent of women always worked, the so-called entry of women into the workplace during the post-World War II period doubled the number of women working. So, plenty of Americans are working, but the problem stems from what they are being paid to do.
Take, for example, the 3,200 employees of Facebook. Due to the IPO, it is estimated that they are each worth $2.9 million, thanks to their ownership shares in the newly listed corporation. But have each of them truly produced anything even remotely approximating that value in making it possible for everyone to know what their cousin had for lunch today? Have any of them really produced anything that is worth nearly $3 million in allowing everyone to tell the rest of the planet what they like? Even the advertisers don't appear to find it terribly valuable and advertising the only sizable market that Facebook has been able to find for its products.
What Facebook represents is the present pinnacle of the 30-year trend of the Information Age. From start to finish, there is nothing there. There is no real work, there is no real product, there is only the electronic version of paper chasing paper, from the transfer of a picture from one person to another to the transfer of dollars from one bank account to another. Only the copious reliance upon debt and the way in which the money constantly flows from one person to another obscures the fact that no economically productive activity is taking place.
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What, precisely, is the significant difference between an economy built on Facebook and a tribe of naked pagans exchanging leaves with one another? At least in the case of the latter, someone is picking up the leaves off the ground. The idea that the more efficient exchange of information would make us more productive refuted itself with the release of Windows 3.0 and the inclusion of Solitaire and today is no more credible than the now-laughable idea that financial innovations and complex financial instruments would benefit the economy as a whole.
I don't begrudge the Facebook investors their billions nor do I know where this is all leading. And yet, I can't escape the thought that if Facebook is the crown jewel in our economic empire, the emperor is not wearing any clothes.