Facebook and the economic value of data
by Mark Austen Whipple
This blog is about the economic value of data and what it means more generally for society that data have come to be private property. For instance, Facebook has announced it will go public sometime this year (2012). Assuming the world doesn’t end before Facebook gets the chance, the company’s IPO could put the value of the company as high as $100 billion but, most are saying, no less than $75 billion.
Facebook is primarily two things: First, as everyone knows, it is a social-networking site. Facebook has about 845 million active users and over 100 billion friend connections. Second, as somewhat fewer people know, Facebook is an intellectual-property hoarder. They hoard data, lots of it.
As to the first, Facebook obviously created a successful, interesting social network that allows millions to express their personal and cultural identities, and also to maintain social ties, both close and loose. Facebook is the commercialization (and the social performance) of neighborliness, friendship, and kindness. People are indeed kind on Facebook; users generously click ‘like,’ and often give compliments, all of which creates pleasant atmospheres for interaction.
Facebook’s IPO arguments involve more than that, however. The IPO represents a transformation, or the culmination of a transformation, from a cultural and personal use company to an economic giant. The question for the future of Facebook as an economic giant is: how good are its data? How valuable? And how good of a case can Zuckerberg make that his data are the best in the world?
I don’t mean to say social-networking alone is without economic benefit. Economies have longed depended on the very kinds of social cohesion Facebook provides. Zuckerberg himself writes,
“We think a more open and connected world will help create a stronger economy with more authentic businesses that build better products and services…As people share more, they have access to more opinions from the people they trust about the products and services they use. This makes it easier to discover the best products and improve the quality and efficiency of their lives.” (link)
What I mean is Facebook’s bottom-line — its valuation — requires objectively true assets. The argument that ‘We create cultural cohesion, which is necessary to capitalism,’ might be true, but it’s hard to objectify in terms of the bottom line.
That is why the way investors ultimately interpret the value of Facebook’s data — or more specifically, the value of its databases, which are potentially objective assets — is the thing to watch in terms of whether the wild speculations of Facebook’s value are sustainable, and investors will continue to be enriched, or whether they are over-inflated, and bound to disappoint. So, how good are Facebook’s data? I believe quite good, but I have my doubts, too, which I’ll write about soon.