Facebook: Like the Dot-Coms All Over Again

Off the Beat: Bruce Byfield's Blog

May 27, 2012 GMT
Bruce Byfield

I was nonplussed about Facebook becoming a public company. Part of my reaction was due to the fact that I'd been expecting the IPO for some time. An even larger part is attributable to my deep-misgivings about Facebook, for all the usual reasons from privacy concerns to the amount of time it can suck up. But I took a while to realize the greatest source of my reaction: I've seen it all before.

The year was 1999. I had newly discovered free and open source software (FOSS)), and was newly employed in a company on its cutting edge (or so I thought at the time). Eighteen year old coders were camping overnight in the boxes that office furniture came in -- not because it was crunch time, but because they were determined to have the whole experience of the times. We were doing important work, and FOSS was on everybody's lips. If we didn't know what the end would be, we all agreed that the ride was exciting in itself. Certainly, it was better than pocketing a pay cheque for producing payroll software.

Then the IPOs from FOSS companies started arriving. Red Hat delivered a very solid one, and helped to make FOSS respectable. VA Linux (Now Geeknet, and sadly diminished) set a record for first day trading. Even Andover.net, the company behind sites like Slashdot and Freshmeat, got into the act.

Not that many people outside the community understood anything about FOSS. The idea that cooperation might trump competition at least part of the time was far outside the average investor's mindsets. Once or twice, potential investors making the rounds of the office looked distinctly queasy when I tried to explain the then-untested business model.

However, these misgivings were seen buried by the hype. FOSS was The Latest Thing, analysts kept reassuring the mainstream business world. And all the while, the unspoken subtext of the message for investors was, "You wouldn't want to be left behind, would you?"
Afraid to admit that the emperor was under-dressed for the occasion, investor and investor decided to pretend that they Got It, and invested in FOSS startup after startup.
And, because the startups were startups, and -- like the one that employed me -- frequently owned and run by people who didn't understand FOSS any better than the investors did, most of them failed, having spent money in a way that would have left the late Roman emperors panting to keep up.

Like beads on a broken necklace, company after company dropped to the floor. The best left legacies of code that the community gratefully took over. The worst left nothing, except a contribution to the idea among investors that FOSS was as risky as it was unfathomable. It took several years before most investors would even consider backing a FOSS-based companies, let alone go public with one.

The replay
However, a dozen years is a long time in business -- long enough for the mistakes of the past to be forgotten, and repeated by a new generation of investors.

True, Facebook was far from a startup. Nor is it a FOSS-based company in the sense that Red Hat, or even Google is. But, like all social media sites, its technology is FOSS-based, and would probably not be remotely viable otherwise.

Even more importantly, social media has much of the same air of mystery that FOSS did around the turn of the millennium. Few investors understand it, but it still seems a fresh and thrilling new direction, despite having existed long enough to serve as its own debunking.

Perhaps it helps, too, that the average investor is not the sort to hang out on Facebook friending people and posting shots from their latest party. Probably, in their hearts, they feel these activities a waste of time. Almost certainly, they are too busy.

Of course, there were a few somber warnings that Facebook's business fundamentals didn't add up, that Zuckerberg is not much of a business man, and that the initial price was an absurdity.

But, just as in the Dot Com days, common sense just wasn't common. Instead of polling financial advisors, journalists and potential investors listened to the geeks and social media freaks.

These sources didn't care about the financials; they like the concepts and the technology. The geeks and freaks made their own living from social media, and they wanted very badly to see social media -- and therefore themselves -- validated. So they told the journalists and investors that social media was something wonderful, and that those who refrained from investing in Facebook would regret their decision.

The rest was just the usual farce when history repeats itself. The only difference was the collapse came much more quickly than in the Dot Com era. But probably that only shows how unsubstantiated a fantasy the Facebook public offering was from the start. This time, apparently, the emperor was not only naked, but doing a lap dance.

The fundamental things apply
Emil Protalinski and Steven J. Vaughan-Nichols had an interesting discussion last week about what the IPO means for Facebook's future -- whether five years from now it will be popular or shrivel to a remnant of its current glory.

This is a topic worth discussing, but what interests me is the post-mortem. For me, what is more important than the future of the Facebook site is what the last week or so suggests about the tech industry in general.

It tells me that -- as I suspected -- that the industry has no collective memory. Even more importantly, it tells me that business still doesn't understand that endorsements from developments have little to do with finances, or that, to run a tech business, you have to understand the tech that you marketing.

That means that, five or ten years from now, we will have another rerun -- and, if things carry on unchanged -- no doubt in twenty and thirty years as well.

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