I’m no financial expert (as nemo can attest), and Wall Street sure ain’t my beat here at the Daily Cannibal. But with all that, I feel pretty comfortable in owning precisely zero shares of Facebook stock. I’m amazed that the social networking company had a valuation as high as it had; it’s pretty clear even to a simple (and, for that matter, non-expert) Facebook user like yours truly that Facebook, as a cultural institution, has peaked.
Yes, with nine hundred million users the social network is on top of the world, but what is the top of the world if not a peak? Or at least a plateau. Isn’t it fair to ask whether Facebook is the embodiment of a newly evolved and ongoing human need, or just a cresting trend? In fact, the jury is still out on whether online social networking in general will persist in the economy, like the need for plastic or potatoes or energy. Regardless, Facebook itself is nothing more than today’s dominant expression of that phenomenon.
Critically, Facebook is being run by fallible humans trying to manage a universe of socializing that has never existed before. Can they really be expected to make the correct decisions even in the near term, not to mention the longer term that the average investor cares about?
Facebook has all those users because it gives people an experience they like for free. It’s free because its customers are not the citizens who use it to share photos and videos and links with their friends, but the businesses that pay to use it as a marketing and advertising platform. Google earns enormous profits with a similar model, but an entirely different concept: Rather than setting up a communal environment (the wilting Google+ aside), Google offers consumers straightforward, distinct services, primarily search.
Google search is a free service that feels like a service, so we’re perfectly content to be exposed to ads as our cost of using it. Facebook, by contrast, feels like a comfortable, friendly environment in which to hang out with people. As such, it isn’t a place where we want to be hit with the latest marketing message from the beverage industry. So Facebook has to accomplish two Herculean tasks at the same time: fully monetize without losing its appeal, and maintain its dominance in the trend landscape. That’s a very risky bet if you ask me.