A virtual or real force?
With two bounds, the young geeky hero leapt from a cluttered Harvard dorm to swanky Silicon Valley headquarters and then to an initial public offering that will jet-propel him to become the fourth richest person on planet earth, worth somewhere close to US$28 billion, give or take the odd billion or so.
The numbers in the saga of Mark Zuckerberg and Facebook have attracted forests of newsprint in the West, less so in Asia where countries like Japan, South Korea and China have their own sites or are not disposed to allow an intrusive American upstart to stir up potential trouble.
Even so, Facebook's public flotation raises important questions not only about the genius of one young Harvard dropout, but about the use of their time by the growing generation in the West, the priorities of the financial markets, the operations of the internet and indeed the direction of capitalism in the West.
Most commentaries so far have been so mesmerised by Facebook's numbers that they have not paused to ask these seminal questions going to the philosophical heart of the modern world of finance, business and capitalism.
Some of the numbers are breathtaking. Facebook has more than 845 million users, and expects to reach a billion later this year. As The Economist, obviously a fan, noted, if Facebook were a country, it would be the world's third largest in terms of population. Unlike other firms at the time of the internet bubble, Facebook has revenues, US$3.7 billion last year, and healthy profits of US$1 billion, amazing in just eight years.
Facebook users upload 250 million photographs a day, click that they 'like' items posted by friends 2.7 billion times a day, and have a web of 100 billion friends and connections on the site. Last year 56 per cent of Facebook's revenue came from advertising. Its profit margin is 27 per cent, just above that of Google, and way above the 5 to 10 per cent of most physical businesses.
Comparisons are inevitably made with Google's IPO in 2004, the year that Facebook was started. But even a valuation on the low side, say US$85 billion, for Facebook would be nearly 25 times last year's revenues and 85 times last year's profits. Facebook is expected to be more than five times more expensive than Google's IPO and almost 40 times more expensive than the average large IPO of the last 40 years.
Given these multiples, most of the analysts and critics on the balding, greying and wrinkly side of 50 have been sceptical about Facebook's IPO. In spite of the extensive public filings there are still large questions unanswered apart from the price of the shares, privacy and when the original investors will cash in their shares.
There are separate issues of whether to try to buy a chunk of Facebook and what is the future of the firm. The lesson of Google is that if you got in at the opening price of US$85 and held on through difficult times, you made an annual average return of 40 per cent. Yahoo, trading on a price-to-earnings ratio of 125 at one time and today at 19, is a different story, as is Apple, which rode a roller-coaster almost to hell and back.
Facebook's bullish supporters predict that it will be bigger than Google. Zuckerberg is highly ambitious. After the flotation, he will be worth about US$28 billion, following Bill Gates, Warren Buffett and Larry Ellison of Oracle in the roll-call of the world's richest people. Zuckerberg will keep 53 per cent of the voting rights, thanks to a dual share structure. He will also face a US$1.5 billion tax bill.
Along with the paperwork for the IPO, Zuckerberg presented a personal letter, ranging in tone from merely missionary to positively messianic. He begins: 'Facebook was not originally created to be a company. It was built to accomplish a social mission - to make the world more open and connected.' He goes on for more than five pages in similar vein, hoping to 'get everyone in the world connected, to give everyone a voice and to help transform society'.
James Kwak of The Baseline Scenario questioned whether people would want to allow their shopping choices to be dictated by advertisers willing to spend the most money for your attention.
Facebook's supporters retort that the site's capacity to tailor advertising to its users based on their particular likes is a source of its greatest strength. Similarly, a big challenge is the growing use of mobile phones rather than computers to access the site, so Facebook must discover ways of promoting ads on the mobiles.
The Economist, in a lengthy, highly positive commentary said that Facebook could create its own advertising network using its tentacles already spread across the internet.
It could also attack the online-search business, accounting for nearly half of online advertising in the United States. Another potentially profitable area is to promote Facebook Credits, a virtual currency, for which the firm will accept payment in more than 40 actual currencies.
A key question is whether Facebook is a virtual or becomes a real force in people's lives. Supporters say that with a billion dedicated users, some of whom spend six to eight hours a day on the site, a US$100 billion valuation assumes that each user contributes only US$100, surely an underestimation of the potential earning power given the dedication and the details that Facebook knows about each user's life and likes and dislikes.
There is also a wider issue involving privacy and freedom. Tim Berners-Lee, the inventor of the World Wide Web, criticised Facebook - surely correctly - for being a 'walled garden' because it takes information and keeps it exclusively, thus damaging and fragmenting the internet.
Critics also say that Facebook is rather like the Hotel California in the Eagles' song, where 'you can check out any time you like - but you can never leave!'
An increasingly important question is likely to be who owns the information about yourself that you put on your Facebook page. Whether used well or used badly, such virtual information becomes real power, and probably the key to Facebook's future.
Internet advertising is expected to grow at an annual average rate of 15.9 per cent to this amount, in US dollars, in 2014, says Zenith Optimedia