Everywhere I turn, I’m hearing about Facebook’s IPO on Friday. The media, economists, pundits and the public are speculating about stock price, total valuation, and on and on. And of course, people are questioning whether or not Facebook will have staying power in the long run.
Mark Evans from Forbes Magazine warns readers to “Stay away from the Facebook IPO” because of social media fatigue, Facebook is no longer hot and sexy, and Facebook has not figured out how to make money from mobile, which represents nearly half of Facebook’s users.
A poll by AP-CNBC this month reports that half of Americans think Facebook’s appeal will fade. But if you look closely at the numbers, nearly 60% of those polled under 35 say Facebook is a good bet. And you know how we talk about the 800 pound gorilla? Facebook now reports that it has 900 million subscribers around the globe! Who can argue with numbers like that?
Me, I’m influenced on this issue by an article written by Michael Mauboussin back in 2005 on ecosystems. Mr. Mauboussin is the Chief Investment Strategist at Legg Mason Capital Management. In the article, Mr. Mauboussin says that “the crucial battle is not between individual firms but between networks of firms.” Ultimately, “keystone companies—businesses at the center of a healthy economic ecosystem—are the most likely to deliver sustainable value creation.” In the article, Mr. Mauboussin was talking about eBay, which has created an entire ecosystem to support its business, including hundreds of thousands of sellers, drop off stores, auction service shops, and payment processors like PayPal.
Is Facebook a keystone company? On the face of it, I think the answer is yes. There are hundreds of thousands of companies that have created business pages to promote their products and services, hundreds of companies have been formed entirely for the purpose of creating social, gaming and business apps for Facebook, Facebook has thousands of advertisers, thousands of companies are now selling their products through a Facebook store, and there have got to be hundreds of thousands of consulting companies helping clients take advantage of Facebook.
Like eBay, I think Facebook will lose a lot of its hip and sexy aura, and Facebook will likely develop plenty of rivals. Will Facebook stick around for decades, even generations? No idea. But if people continue to spend a lot of their social time on Facebook and companies and advertisers continue to advertise and promote on the platform, I don’t see how Facebook can be a bad bet. Does this mean I’m going to buy a bunch of stock on Friday? Nope, I’m going to see where the stock settles and then I’ll give it more thought.
How about you? Do you think Facebook has staying power? Are you going to buy Facebook stock? Do you think Facebook is a keystone company?
P.S. If you want a copy of Mr. Mauboussin’s article, go to the LMCM Vault, then do a search by Author = Mauboussin and date range = 2005. Sorry, I could not figure out how to get a direct link to the PDF. I think the article is absolutely worth reading. I also highly recommend subscribing to Mauboussin on Strategy, a monthly publication. (Nope, I am not affiliated with LMCM, I don’t own their stock, and I’m not related to anyone there.)