Skip to main content
Part of complete coverage from

Will Facebook lose its edge after IPO?

By Douglas Rushkoff, Special to CNN
May 15, 2012 -- Updated 2315 GMT (0715 HKT)
Douglas Rushkof says Facebook creator Mark Zuckerberg may be jumping into the stock market at the wrong moment.
Douglas Rushkof says Facebook creator Mark Zuckerberg may be jumping into the stock market at the wrong moment.
STORY HIGHLIGHTS
  • Douglas Rushkoff: Speculation over the meaning, value of Facebook IPO is overblown
  • He says valuation of company likely too high, timing not great, but people want in anyway
  • He says current Facebook will be overtaken by next-generation media; it must innovate
  • Rushkoff: By accepting Wall Street's terms Facebook may sacrifice innovation to profit

Editor's note: Douglas Rushkoff writes a regular column for CNN.com. He is a media theorist and the author of "Program or Be Programmed: Ten Commands for a Digital Age" and "Life Inc: How Corporatism Conquered the World and How We Can Take It Back."

(CNN) -- Facebook advocates are touting the company's initial public offering this week -- the biggest ever for an Internet company-- as if it will save the net, the economy and the American way. Its detractors see the final chapter in the rise and fall of a smart but solipsistic Harvard dropout, and predict the inevitable decline of Facebook's stock will spell the end to innovation in social media. Internet Bubble 2.0.

Of course, none of this is true. Such hyperbole is more about our traditional media's need for simple stories than anything happening at Facebook or on Wall Street. These are the judgments of financial analysts who don't even know what API stands for (application program interface), and technology analysts who never heard of the Greenshoe option (the provision for an underwriter to oversell).

Douglas Rushkoff
Douglas Rushkoff

This factless speculation, combined with the risk-off jitters of the greater markets, has led to the conflation of stock value with business, and one social media company with the future of the net. If the dot.com bubble and more recent stock market crash should have taught us anything, it's that stock prices have been uncoupled from business profitability, which has in turn been uncoupled from value creation.

Follow @CNNOpinion on Twitter and Facebook.com/cnnopinion

Facebook can still be one of the most successful and significant companies of the past 100 years without being nearly worth an IPO valuation of $100 billion. Meanwhile, traders buying stock at that valuation can still make billions more over the next hours or days, even if the stock then plummets or slowly peters out. Likewise, Facebook can shoot to a sustained stock market success even without showing a reasonable profit for many years. Finally, Facebook can become the biggest stock market and business loser since Lucent (who?) without taking the Internet or social media down with it.

Facebook investing 101
Should you "like" the Facebook stock?
What you should pay for Facebook stock

So to start, let's look at the IPO in isolation. Is Facebook worth the $96 billion reportedly implied by IPO valuation? Not at the moment. Facebook's profits are down since last year, its membership growth is stagnating and the online advertising market is softening. This IPO comes at a later than ideal time, as the potential trajectory for the company no longer seems infinite.

Does that mean you shouldn't buy the stock on opening day? Of course not. The price of Facebook shares will have nothing to do with the reality on the ground (or online). Everyone wants in, demand is outstripping supply, and the hunger for shares could push the price very high in the short term. None of this has anything to do with social media, it's just gambling.

It's also possible that even the craziest speculators are still undervaluing Facebook's ultimate worth. That's where a media theorist like me can venture an opinion -- and I'd have to say no, they're not. Facebook is certainly the best of the social media apps to come along, just as Google was the best search engine. Similarly, however, the social media playpen constituted by Facebook is temporary. Just as we are moving away from Web search into a world of applications running on smartphones, we will move away from our single Web-based social media platform toward more ad-hoc social apps on our handheld devices.

It's hard for us to imagine right now, but we won't be logging into Facebook to find out what's going on; we'll work and play in an ecology of apps that tell us where people are and what they are doing.

Yes, Facebook may have a role in that next-generation social media universe, but it will need what tech industry people like to call "a second act." Apple's second act is the iPhone. Google is hoping for "augmented reality" eyeglasses and network-controlled automobiles.

Are you living without Facebook?

Facebook's second act is far from clear. It wants to become the platform on which everybody else builds social media apps. But if all this activity is happening on smartphones, then Facebook is dangerously dependent on Android and iPhone for everything, a layer on top of Apple and Google's systems. Facebook's inability to generate income on the smartphone has led to some desperate moves, such as its billion-dollar acquisition of photo-sharing app Instagram and off-putting products like "sponsored stories."

So far, love him or hate him, Facebook creator Mark Zuckerberg has been consistent with his vision of building a more social Web: a peer-to-peer communications infrastructure that changes the way people connect, share ideas and sell things. The more comingled his mission becomes with the priorities of Wall Street, the less freedom he will have to challenge the status quo.

The Facebook IPO itself, for instance, is being conducted in the most traditional fashion possible, with underwriters establishing a price and offering shares through brokerage houses. Compare this to Google, who let the public establish the share price through open bidding, mirroring the company's revolutionary, bottom-up search algorithm, and challenging underwriters with net democracy.

The most radical thing Zuckerberg has done so far is attend investor meetings in a hoodie -- as if to say, "in your face." Cute, but it hardly asserts innovation in the face of profiteering, or social networking in the face of the corporate capitalism.

This is a week when the stock markets are particularly vulnerable to a new message. The CEO of Yahoo is resigning after a controversy over resume padding, while executives at JP Morgan Chase are falling on their swords for losing so much money, so quickly, that they may change the regulatory landscape for their entire industry. People are ready to embrace a new way of playing this tired game.

By jumping headfirst into the stock market, Facebook may be joining a zero-sum shell game at just the wrong "risk off" moment. If Facebook does succeed in the stock market this week, then it will do so at the expense of Groupon, Apple and Google, whose net-fetishizing investors will likely be selling those shares in order to buy the new ones from Facebook. Worse, by joining in the speculative economy on Wall Street's terms, a company that might have changed business instead subjects itself to forces far beyond its control.

Follow us on Twitter @CNNOpinion

Join us on Facebook/CNNOpinion

The opinions expressed in this commentary are solely those of Douglas Rushkoff

ADVERTISEMENT
Part of complete coverage on
April 22, 2014 -- Updated 2247 GMT (0647 HKT)
Q & A with artist Rachel Sussman on her new book of photographs, "The Oldest Living Things in the World."
April 22, 2014 -- Updated 1958 GMT (0358 HKT)
Martin Blaser says the overuse of antibiotics threatens to deplete our bodies of "good" microbes, leaving us vulnerable to an unstoppable plague--an "antibiotic winter"
April 22, 2014 -- Updated 1737 GMT (0137 HKT)
John Sutter asks: Is it possible to eat meat in modern-day America and consider yourself an environmentalist without being a hypocrite?
April 22, 2014 -- Updated 1538 GMT (2338 HKT)
Sally Kohn notes that Meb Keflezighi rightly was called an American after he won the Boston Marathon, but his status in the U.S. once was questioned
April 22, 2014 -- Updated 1256 GMT (2056 HKT)
Denis Hayes and Scott Denman say on this Earth Day, the dawn of the Solar Age is already upon us and the Atomic Age of nuclear power is in decline
April 21, 2014 -- Updated 2036 GMT (0436 HKT)
Retired Coast Guard officer James Loy says a ship captain bears huge responsibility.
April 21, 2014 -- Updated 1708 GMT (0108 HKT)
Peter Bergen says the latest strikes are part of an aggressive U.S. effort to target militants, including a bomb maker
April 21, 2014 -- Updated 1345 GMT (2145 HKT)
Cynthia Lummis and Peter Welch say 16 agencies carry out national intelligence, and their budgets are top secret. We need to know how they are spending our money.
April 21, 2014 -- Updated 1235 GMT (2035 HKT)
Julian Zelizer says President Obama knows more than anyone that he has much at stake in the midterm elections.
April 22, 2014 -- Updated 1255 GMT (2055 HKT)
Eric Sanderson says if you really want to strike a blow for the environment--and your health--this Earth Day, work to get cars out of cities and create transportation alternatives
April 21, 2014 -- Updated 1408 GMT (2208 HKT)
Bruce Barcott looks at the dramatic differences in marijuana laws in Colorado and Louisiana
April 18, 2014 -- Updated 2047 GMT (0447 HKT)
Jim Bell says NASA's latest discovery supports the notion that habitable worlds are probably common in the galaxy.
April 18, 2014 -- Updated 1817 GMT (0217 HKT)
Jay Parini says even the Gospels skip the actual Resurrection and are sketchy on the appearances that followed.
April 18, 2014 -- Updated 1752 GMT (0152 HKT)
Graham Allison says if an unchecked and emboldened Russia foments conflict in a nation like Latvia, a NATO member, the West would have to defend it.
April 18, 2014 -- Updated 1311 GMT (2111 HKT)
John Sutter: Bad news, guys -- the pangolin we adopted is missing.
April 21, 2014 -- Updated 1825 GMT (0225 HKT)
Ben Wildavsky says we need a better way to determine whether colleges are turning out graduates with superior education and abilities.
April 18, 2014 -- Updated 1026 GMT (1826 HKT)
Charles Maclin, program manager working on the search and recovery of Malaysia Flight 370, explains how it works.
April 18, 2014 -- Updated 1250 GMT (2050 HKT)
Jill Koyama says Michael Bloomberg is right to tackle gun violence, but we need to go beyond piecemeal state legislation.
April 17, 2014 -- Updated 1845 GMT (0245 HKT)
Michael Bloomberg and Shannon Watts say Americans are ready for sensible gun laws, but politicians are cowed by the NRA. Everytown for Gun Safety will prove the NRA is not that powerful.
ADVERTISEMENT