Jonathan Yarmis is Doctor Disruptive

2011 has begun with news that Facebook has secured a new round of funding which values the company at $50 billion.  I actually think that’s a reasonable valuation (although in another post later today or tomorrow, I’ll talk about my expectations of a social ennui in 2011, as we come to realize the fundamentally flawed approaches most brands are taking towards the notion of social engagement; yes, I know, a provocative statement).  In fact, I believe there’s still room for growth in Facebook’s valuation nor do I expect this valuation will cool the private trade in Facebook shares.  Many early commentators seem to the valuation is insanely high.  I actually engaged in a Twitter exchange with two analysts I hold in the highest esteem — Sameer Patel and Esteban Kolsky — around 2:30 this morning on this very subject.

My points:

• Google’s market cap is nearly $200 billion.  Is Google really four times more valuable than Facebook?
• Users now spend more time on Facebook than they do on Google, Yahoo…or any other web property.  Somewhere that’s monetizable (although that’s a post for another day soon).
• Users are not only exchanging information about where and what they eat, social platforms are becoming an increasingly important way of discovering information, augmenting and, yes, replacing search in that regard.  (Where did you find out about this blog post?)
• It is much easier to for a user to replace Google than it is to replace Facebook.  If you want to replace Google, you go to Bing.  Period.  You might even find the experience better.  OK, it’s a little tougher than that.  You might have to exchange tool bars, change a couple of preference settings on your computer and update a few links and passwords.  Those of you reading this blog are probably more sophisticated than most so you have a few more things to change but also the technical wherewithal to do so.  You could do it today and wouldn’t miss a thing.  I’ve even seen a few friends announce their New Year’s resolutions as going Google-free this year.  (Well, some of them said Google- and Facebook-free although ironically they made this proclamation on Facebook.)  Anyhow, you could reasonably go Google-free and have a completely adequate replacement by the end of the day.  How would you replace Facebook, however?  This assumes, of course, that you think there’s any value in a social platform, and I’m not going to try to defend against the argument that you don’t need to replace Facebook.  Facebook is so much more than a listing of who’s doing what but also categorizes my relationships (business and professional), captures activities (and serves as the log-in) to/from many third-party web sites and has otherwise become an important piece of the connective tissue.  Replacing Facebook means rebuilding your social connections, likely across multiple platforms involving multiple acts of outreach to friends on the disparate platforms.  Rebuilding your social graph is time-consuming and likely to be incomplete.  “Substitutability” is one component of the economic definition of a commodity.  Google is highly substitutable, Facebook is not.

Sameer and Esteban also suggest that Facebook is just the flavor du jour and that they’re due for a fall.  I do not believe this is an issue in the horizon over which this valuation must be justified.  Yes, in the early days of key technology platforms, we burn rapidly through a number of them before sticking on one for a variety of complex reasons, usually beyond the control of the platform owner itself.  How many search engines were your favorite/default?  I count Yahoo, Excite, Ask Jeeves and Alta Vista as past favorites before sticking on Google.  Similarly, I used several social platforms before Facebook achieved its prominent and dominant state.  500 million users gives you a pretty strong base from which to retain market leadership and even competitors are now being forced to embrace Facebook’s role in the “ownership” of the social graph (witness MySpace’s recent concession; TechCrunch has a particularly amusing take on it).

I hasten to acknowledge that Google has done a much better job of monetizing its position and that in fact is the enduring genius of Google.  As I and others have often observed, Google may really be just a one-trick pony…but it’s a damn good trick.  Facebook is nowhere near as mature as Google when it comes to understanding, or inventing, how it’s going to monetize its commanding position.  I think, however, that represents as much a failing of brands and consumers as it does of Facebook.  Maybe if they hadn’t handle the whole Beacon initiative in such ham-handed fashion, we’d be much further along…but there’s no turning back that clock and besides, Facebook has continued to make boneheaded moves in maintaining the critical user trust although, critically, I do not believe it has even approached the status of irreparably damaging that trust.  People just haven’t abandoned the platform despite all the posturing and hand-wringing.

Anyhow, I believe profoundly in the ability to monetize social platforms and their tremendous power in transforming the relationships between brands and customers, customers and customers and among brands themselves.  Today’s blather about “being part of the conversation” is most assuredly not the answer.  A few years from now we’ll look back on today’s efforts and laugh at just how immature, ineffective and ultimately misguided they were.  In fact, I think this will lead to a bit of what I call social ennui (that’s French for “boredom”), which I actually believe will be a dominant theme in social media in 2011.  Again, I’ll write about that today or tomorrow in my look-ahead blog piece.  For now, I’ll just leave it that a $50 billion valuation for Facebook sounds actually quite reasonable and that it’s not evidence of a bubble (although Groupon’s walking away from $6 billion may be).

Happy 2011, friends.

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