Facebook valuation should be $8Bn, not $100Bn

Facebook is near saturation in many developed countries and is starting to decline amongst those already using it. This year, it made $2Bn, but in the next year or two, after perhaps a short period of further growth, that is likely to halve and continue to shrink. It is therefore either at or near its peak value now, but sensible valuation for investment purposes must take account of its likely imminent decline, so it is worth rather less than its estimated $100Bn, a figure I personally find astonishingly naive, and seems to assume that investors are still extremely gullible even after the last dotcom crash.

Facebook’s current slow decline will accelerate rapidly as it becomes less cool to be seen using yesterday’s tools. Being cool (or whatever cool is called this week) is very important to people using Facebook.

Its size is still growing because more people are discovering it than are discovering they are bored with it, or frightened by privacy concerns. But worldwide, there aren’t enough people that haven’t used it and are potentially interested to continue to replace those that will, and most of the new members are relatively poor so of less value to advertisers.

It will also remain at severe risk of rapid decline due to new entrants stealing its core members and their loyalties.

If we assume the current $2Bn may grow to a peak of $3Bn before rapid decline sets in, and then it falls to $1Bn before starting to stabilise as a pretty walled garden, but take into account its high potential ongoing volatility, it is hard to argue for more than 8 times current profits for a valuation. Using $1Bn as an estimate of ongoing potential sustainable profit level, that gives a realistic valuation of $8Bn. I wouldn’t pay a penny more, and I’d still consider that a risk that requires a high level of skill to maintain via ongoing reinvention.

The future of government

Democratic government has many responsibilities.  Trying to fairly resolve the differing and sometimes conflicting needs of various groups, it must also provide an administration and services to serve the whole community, such as health and education, provide defence against hostile forces and maintain law and order. It must collect and manage the resources to pay for these services, and allow people to express their wishes on their preferences, including choice of their governors. These responsibilities will remain, but all of them will be subject to change brought about by new technologies.

Governments have traditionally had sharp teeth to enforce their decisions, but the spread of the internet and social networking tools has removed some of the significance of geography, and given new power to individual citizens. Governments are discovering everywhere that they are becoming more accountable, whether they like it or not. Their limited jurisdiction is also becoming obvious. It is conspicuously hard to police network access to undesirable material  located in foreign countries, or indeed to force injunctions. International agreements and cooperation between jurisdictions has allowed at least some control, often based on the locations of servers or the person posting something. However, in our information economy, with the entire produce of some companies being information, these problems could still worsen. Pure information companies don’t ultimately need any physical base, and could move their operations round the world continuously, refusing to pay tax to any geographically based government or refusing to obey legal orders, hopping second by second around the worlds cloud of servers. The same goes for tweets and injunctions. Tweeting to bypass injunctions could theoretically be entirely automated and left to encrypted software and artificial intelligence to do the dirty work, with its original writers long since hidden away.  If an AI reads the web continuously and automatically exposes things that fit its directives, it could carry on regardless of any court orders. It could be virtaully impossible to stop it, and a piece of software cant be punished or arrested or locked up, especially if it is distributed worldwide and hidden by annomyity servers and encryption. With progress in cloud technology and AI proceeding rapidly, this kind of problem will soon become real.

As people increasingly work and play with people in other countries, we expected a long time ago that by now we would see political power structures become less geographical, with cybernations made of many people who share common ideals, (e.g. environmentalism or feminism) rather than a common physical location, linked by networks rather than by land. Cybernations may wield the weapon of economic sanctions without fear of reprisal since their membership can be anonymous, but mobilised instantaneously by a single e-mail from the leadership. The impact of feminism would have been more rapid with instant communication. This hasn’t really happened yet, not as we expected in the early 90s when we were mapping out the future of the web. It isn’t really obvious why the political potential of the web has been so poorly tapped so far, but political vacuum cannot remain forever. The web is being used for politics to some degree, it just needs to mature a bit more.

However, we will still have geographic government, and communication between government and citizen may improve. Government often talks about consultation, and we often suspect it is all just a pointless show. But if they genuinely do care what we think other than election time, I believe we could go further to make a more responsive democracy. If we wanted, we could allow each citizen to have their preferences on important issues stored in a database, an electronic shadow, suitably anonymous to everyone else of course. Government would then know all the time what the electorate want. Referenda could be instant, and lazy voters could select party defaults for all issues instead of deciding on each. Lobbying could be made easier too, and we will see internal as well as global cybernations. We could have absolute instead of representational democracy, or just treat the databases as a continuous opinion poll. I am not sure we really want this though. Democracy is very much a compromise kind of government and it wouldn’t be good to take it too far in terms of letting everyone decide everything. Who knows what that would end in? Mob rule I suspect.

Some people expect that the web will enable a stateless society to emerge. It hasn’t yet, but the web is young. Few of us have grown up with a mature web, and those that have are still in primary school, so we shouldn’t be too demanding. It will take time. And none of us really has any idea what that would be like anyway. We have no experience of leaderless societies that have lasted any more than months. Communes fail, uprisings stall. Perhaps we will never see one emerge.

But it is ceratin that governemnt will change a lot. We will be forced into more global cooperation for a range of things. New bodies will emerge in parallel with the global ones we already have – the WHO, UN, numerous NGOs and standards bodies and so on. Maybe there won’t be a full world government but maybe also we will see a jigsaw being built of all of these different pieces, and if we assemble them correctly, there is yet some potential benefit.